Process Risk in ’23: Case Studies & How to Mitigate it in 7 Steps

Hi there! In today‘s complex business environment, companies large and small face risks from inefficient, inconsistent, or error-prone processes that can lead to unhappy customers, regulatory issues, and real financial losses. Based on my experience as a data analyst and consultant, I want to provide a comprehensive guide on what process risks are, how to recognize them, and most importantly—how to mitigate them through a 7-step risk management approach.

Let‘s start with the basics: what is process risk? Simply put, process risks are potential problems that disrupt normal business workflows and activities. This includes everything from IT system failures, to supply chain delays, to employees making simple mistakes while performing manual tasks. According to recent surveys, up to 25% of revenues are lost each year due to process risks and failures. No company can afford to ignore these risks!

To understand why process risks matter, let‘s look at some real-world examples:

  • A hospital faces major HIPAA fines after a data breach caused by an employee emailing patient records improperly.
  • An aircraft manufacturer spends millions in rework costs and project delays when faulty parts are produced due to lax quality checks.
  • A mortgage lender sees applications plunge after news spreads about loans approved with missing documents, violating regulations.

As you can see, process risks don‘t just cause minor hiccups—they can seriously impact reputation, revenue, and customer experience when uncontrolled!

The good news is, you can take steps to get ahead of these risks. In this article, we‘ll walk through a proven 7-step approach.

Step 1: Identify Critical Processes and Map End-to-End

The first step is getting visibility into exactly how your key processes operate. Walk through each process end-to-end, documenting every task and decision point. Pay attention to areas that seem convoluted, opaque, reliant on tribes knowledge, or dependent on specific tools, systems, or employees. These often hide process risks.

Process mapping tools can provide visualization and analytics to speed up this step. Advanced technologies like process mining can even automatically discover processes and detect bottlenecks just by analyzing transactional data.

Step 2: Pinpoint Failure Points with Risk Assessments

Next, analyze each process to identify potential failure points. Ask questions like:

  • What could go wrong at this step?
  • What would cause delays or defects here?
  • Which risks could manifest, and how severe would impact be?

FMEA (failure modes and effects analysis) is a commonly used framework to assess risk likelihood, severity, and detectability. Risks are then prioritized based on risk scores.

According to FMEA experts, the top process risks ranked by criticality include:

29% Human Error
26% Requirement Defects
14% Process Design Flaws
12% Tool / Equipment Failure
9% External / Environmental Factors

As shown above, human errors top the list. Something as small as a typo can spiral into huge problems downstream when proper validations are lacking.

Step 3: Address Root Causes, Don‘t Just Treat Symptoms

With priority risks identified, resist the urge to apply quick band-aids! Get to the root of why process breakdowns occur before defining solutions.

Common root causes include:

  • Poor process design
  • Unclear policies
  • Change management failures
  • Lack of training or skills
  • Overreliance on tribal knowledge
  • Tool / technology gaps
  • Supplier quality problems

Fixing root causes proactively is far more effective than reacting after the fact.

Step 4: Implement Controls to Prevent, Detect and Correct Failures

Process controls are mechanisms to prevent, detect, and correct breakdowns. Well-designed controls build quality, compliance and resilience into processes before risks manifest.

Useful controls include:

Preventive – Training, checklists, validations to avoid errors

Detective – Analytics, testing, alerts to spot issues immediately

Corrective – Backups, redundancies, contingency plans to enable rapid recovery

Controls should directly address the most critical failure modes and root causes uncovered in earlier steps.

Step 5: Reduce Risk Impact and Likelihood with Targeted Mitigation

Armed with a prioritized list of process risks and associated controls, develop targeted mitigation plans:

  • Improve process design to eliminate unnecessary steps
  • Automate manual tasks to boost speed and accuracy
  • Upgrade old legacy systems and equipment
  • Diversify suppliers or inventory to prevent shortages
  • Purchase insurance to offset potential losses
  • Implement cybersecurity measures to avoid data breaches

Conduct cost-benefit analysis to ensure mitigation investments pay off in risk reduction.

According to McKinsey research, top-performing companies are 75% more likely to proactively mitigate process risks. Don‘t wait until it‘s too late!

Step 6: Monitor Leading Indicators to Gauge Risk Control

Metrics allow you to monitor the effectiveness of your risk control activities. Key indicators include:

  • Defect rates
  • Process cost
  • Volume of rework
  • Delay frequency
  • Compliance violations
  • Customer complaints

Leading indicators that detect small problems early are especially valuable. Advanced analytics tools can automatically track and visualize metrics to provide real-time visibility.

Step 7: Continually Evaluate and Adapt Your Risk Management Program

With strong risk management, the work doesn‘t stop after initial implementation. Set reminders to re-assess for new emerging risks and evaluate whether existing controls are still effective.

Conduct regular process audits and risk control self-assessments. Review policies and procedures. Assess lessons learned from incidents. Leverage automation to continually monitor for deviations.

Also, promote an ethical culture focused on quality, compliance and proactive risk reduction across your organization. Employees are your first line of defense.

By following this ongoing 7-step approach, you can transform process risks from threats into opportunities to improve. Developing robust risk management capabilities will lead to higher quality, lower costs, and lasting competitive advantage. The time to start is now!

I hope this provides a helpful overview of managing process risks in today‘s business environment. Please reach out if you need any help applying these steps within your organization.

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