--- title: "Operational Risk: Examples and How to Manage It | MHA" description: Learn what operational risk is, see common examples and impacts, and get practical steps to reduce and manage operational risk. image: https://mha-it.com/hubfs/Imported_Blog_Media/business-continuity-importance-1.jpg --- [Skip to content](https://mha-it.com/blog/how-to-manage-operational-risks#main-content) [![MHA by BCMMetrics - navy](https://46330580.fs1.hubspotusercontent-na1.net/hub/46330580/hubfs/MHA%20by%20BCMMetrics%20-%20navy.png?width=245&height=54&name=MHA%20by%20BCMMetrics%20-%20navy.png "MHA by BCMMetrics - navy")](https://mha-it.com/) - [Our Consulting Services](https://mha-it.com/what-we-do) - [Business Continuity](https://mha-it.com/business-continuity) - [Crisis Management](https://mha-it.com/crisis-management) - [Disaster Recovery](https://mha-it.com/disaster-recovery-consulting-services) - [BCaaS](https://mha-it.com/bcaas) - [Program Augmentation](https://mha-it.com/program-augmentation) - [Training and Awareness](https://mha-it.com/training-awareness) - [Our BC Software](https://bcmmetrics.com/) - Resources - [Blog](https://mha-it.com/blog) - [News](https://mha-it.com/news) - [About Us](https://mha-it.com/who-we-are) - [Our Team](https://mha-it.com/our-team) - [Clients](https://mha-it.com/clients) - [In the Community](https://mha-it.com/in-the-community) [Contact Us](https://mha-it.com/contact) [![mhalogo](https://mha-it.com/hubfs/mhalogo.svg "mhalogo")](https://mha-it.com/) [Contact Us](https://mha-it.com/contact) [![mhalogo](https://mha-it.com/hubfs/mhalogo.svg "mhalogo")](https://mha-it.com/) - [Our Consulting Services](https://mha-it.com/what-we-do) - [Business Continuity](https://mha-it.com/business-continuity) - [Crisis Management](https://mha-it.com/crisis-management) - [Disaster Recovery](https://mha-it.com/disaster-recovery-consulting-services) - [BCaaS](https://mha-it.com/bcaas) - [Program Augmentation](https://mha-it.com/program-augmentation) - [Training and Awareness](https://mha-it.com/training-awareness) - [Our BC Software](https://bcmmetrics.com/) - Resources - [Blog](https://mha-it.com/blog) - [News](https://mha-it.com/news) - [About Us](https://mha-it.com/who-we-are) - [Our Team](https://mha-it.com/our-team) - [Clients](https://mha-it.com/clients) - [In the Community](https://mha-it.com/in-the-community) [Contact Us](https://mha-it.com/contact) [![mhalogo](https://mha-it.com/hubfs/mhalogo.svg "mhalogo")](https://mha-it.com/) [Contact Us](https://mha-it.com/contact) - [Our Consulting Services](https://mha-it.com/what-we-do) - [Business Continuity](https://mha-it.com/business-continuity) - [Crisis Management](https://mha-it.com/crisis-management) - [Disaster Recovery](https://mha-it.com/disaster-recovery-consulting-services) - [BCaaS](https://mha-it.com/bcaas) - [Program Augmentation](https://mha-it.com/program-augmentation) - [Training and Awareness](https://mha-it.com/training-awareness) - [Our BC Software](https://bcmmetrics.com/) - Resources - [Blog](https://mha-it.com/blog) - [News](https://mha-it.com/news) - [About Us](https://mha-it.com/who-we-are) - [Our Team](https://mha-it.com/our-team) - [Clients](https://mha-it.com/clients) - [In the Community](https://mha-it.com/in-the-community) [Contact Us](https://mha-it.com/contact) Risk Management # Operational Risk: Examples and How to Manage It Richard Long Updated on: September 28, 2026 #### Relevant Contents #### Need Tailored Business Continuity Insights? Contact Us Now for Personalized Guidance! [Schedule a Free Consultation](https://mha-it.com/contact) **Operational risk** is the possibility that failures involving people, processes, technology, third parties, facilities, or external events will disrupt the organization's ability to operate as expected. Every organization has operational risk. A critical employee can become unavailable. A supplier can fail. An application can go down. A manual process can break under higher volume. A facility can lose power even when the building itself is undamaged. The practical question is not whether operational risk exists. It is whether the organization understands where its most important exposures are and has taken reasonable steps to reduce them. **In short** - Operational risk comes from failures or disruptions involving people, processes, technology, third parties, facilities, and external events. - The resulting consequences may include service interruption, financial loss, compliance problems, customer impact, safety concerns, or reputational damage. - Managing operational risk means understanding critical dependencies, reducing avoidable single points of failure, strengthening controls, and validating that recovery options actually work. - Not every risk needs to be eliminated, but significant remaining exposure should be visible and consciously addressed. ## What Is Operational Risk? Operational risk is exposure created by the way an organization performs its day-to-day work. It can arise when: - a critical process fails - a person makes an error - essential knowledge is concentrated in one employee - technology becomes unavailable - a supplier cannot deliver - a facility or utility is unavailable - a control does not work as expected - an outside event interrupts normal operations For business continuity teams, operational risk is particularly important because many of these exposures can become direct causes of business interruption. An application outage matters because of the business processes that depend on the application. A supplier failure matters because of the operations that cannot continue without the supplier. A staffing issue matters when specialized work cannot be transferred to someone else. The connection between the risk and the operation is what makes the exposure meaningful. ## Operational Risk Sources vs. Operational Risk Consequences One problem with operational-risk discussions is that causes and consequences are often mixed together. For example, reputational damage is usually not the original source of an operational disruption. It may be one of the consequences after a service failure, product problem, cyber incident, or prolonged outage. A useful way to think about operational risk is: **Source or vulnerability → disruption → business consequence** For example: **Single supplier → supplier failure → production delay → customer and financial impact** Separating those elements makes it easier to decide what can actually be controlled. ## 5 Common Sources of Operational Risk ### 1. People People-related operational risk includes more than simple human error. Examples include: - key-person dependencies - insufficient cross-training - employees lacking required system access - poorly documented procedures - mistakes during manual processing - staffing shortages - inadequate training A common problem is assuming that naming an alternate solves a key-person dependency. The alternate also needs the knowledge, authority, access, and recent experience required to perform the work. ### 2. Processes A process can fail even when the people and technology supporting it remain available. Operational process risks include: - unclear handoffs - single approval points - undocumented manual steps - workarounds that cannot handle normal volume - poor change controls - dependencies that are not visible to the process owner Manual workarounds deserve particular attention. A statement such as "we will process it manually" is not a recovery strategy unless people know how to do the work and have the information, forms, equipment, access, and capacity required. ### 3. Technology and Data Most important business activities depend on technology in some form. Examples of technology-related operational risk include: - application outages - infrastructure failure - telecommunications loss - cloud-service disruption - integration failures - cyber incidents - data corruption or loss - failed technology changes The important question is not simply whether a system has backups or recovery procedures. Ask whether the recovery capability can restore the service within the timeframe the business actually requires. ### 4. Suppliers and Other Third Parties Organizations increasingly rely on vendors for technology, materials, logistics, payroll, facilities, customer support, and other important services. Outsourcing the activity does not remove the operational consequence when the provider fails. Look for: - single-source suppliers - vendor concentration - long replacement lead times - weak alternate-source arrangements - critical SaaS and managed-service dependencies - contractual commitments that have not been operationally validated A vendor may have a continuity plan and still be unable to provide the level of service your organization requires during a disruption. ### 5. Facilities, Utilities, and External Events Physical operations can be disrupted without a building being destroyed. Operational risks may involve: - power failure - water or cooling loss - telecommunications outages - loss of building access - specialized equipment failure - severe weather - wildfire or flooding - transportation interruption - regional infrastructure problems Assess the resources a location depends on and what happens if those resources become unavailable. [![Talk to MHA](https://no-cache.hubspot.com/cta/default/46330580/interactive-221376249776.png)](https://mha-it.com/hs/cta/wi/redirect?encryptedPayload=AVxigLJ7XqMw1wAH4CT9f1Lrcrm%2F8vc4WiMqv3Z4I9mlWu6NQcpUlFm8lMo56LedhCyYNX57rRu8PG45FBLecNctvR5qEdRCjvbHh1KNC0bqMRER7y6eTxcnykV2KkA6GHlXZ6ypB0CrGIAqkyrSNOnHdbruJKVE4kBLtTEsNQL6KrnY%2Bpqt80WTN5PIpQuZmnZuv54%3D&webInteractiveContentId=221376249776&portalId=46330580) ## Operational Risk Examples | Exposure | Operational Risk Example | Possible Consequence | Possible Control | | --- | --- | --- | --- | | People | Only one employee knows how to perform a critical reconciliation. | Processing stops if that person is unavailable. | Cross-training, documented procedures, and access for alternates | | Process | A manual workaround can support only 15 percent of normal transaction volume. | Backlogs and missed service commitments during an outage | Capacity planning, alternative procedures, and exercise validation | | Technology | A critical process depends on one SaaS platform. | Employees cannot access customer or transaction information. | Offline data, alternate routing, documented workaround, tested recovery | | Third party | A critical component comes from one supplier. | Production cannot continue when supply stops. | Qualified alternate supplier, inventory strategy, supplier monitoring | | Facility | A distribution center cannot operate after extended power loss. | Orders cannot be fulfilled. | Generator capability, alternate fulfillment arrangements, tested procedures | ## What Are the Potential Impacts of Operational Risk? The same operational event can create several kinds of consequence. Depending on the organization and scenario, those consequences may include: - interrupted products or services - lost revenue or increased operating costs - customer complaints or contract failures - regulatory or compliance exposure - safety concerns - missed deadlines - data loss - reputational damage This is why operational risk should be tied back to the business activity that could be affected. The same technology outage may be minor for one process and severe for another. ## How to Manage and Reduce Operational Risk Operational risk cannot be eliminated completely. The goal is to reduce avoidable exposure and make deliberate decisions about what remains. ### 1. Understand Critical Operations and Dependencies Start with the activities the organization depends on and identify what those activities require to function. Look at people, processes, applications, data, facilities, equipment, utilities, and third parties. Business continuity teams can use BIA information to help identify which dependencies deserve the most attention. ### 2. Find and Reduce Single Points of Failure A single point of failure exists when the loss of one resource can stop an important operation because no practical alternative exists. Single points of failure can involve: - people - applications - suppliers - facilities - network connections - equipment - approval authority See [Single Points of Failure: Protecting Yourself from Hanging by a Thread](https://mha-it.com/blog/single-points-of-failure) for a deeper treatment. ### 3. Strengthen Procedures and Cross-Training Document important activities well enough that another qualified person can perform them. Then test the assumption. Cross-training has limited value if alternates lack system access, authority, current knowledge, or an opportunity to practice the task. ### 4. Build Realistic Redundancy and Workarounds Redundancy can reduce operational exposure, but only if the alternate capability is genuinely independent and capable of supporting the required work. A second supplier that depends on the same upstream source may not provide meaningful redundancy. A manual workaround that handles only a fraction of normal demand may not support the required recovery objective. ### 5. Manage Third-Party Dependencies Identify which suppliers and service providers support important operations and determine what happens if they become unavailable. Where appropriate, review: - recovery commitments - alternate providers - inventory or capacity options - transition times - vendor testing evidence - your own workaround if the provider cannot recover quickly enough ### 6. Validate Controls Instead of Assuming They Work A control should not receive credit simply because it exists on paper. Test or otherwise validate important controls and recovery arrangements. For example: - Can the backup actually be restored? - Can the alternate employee perform the activity? - Can the manual workaround handle realistic volume? - Can the alternate supplier deliver soon enough? - Can backup power operate for the duration required? If the answer is unknown, the organization still has uncertainty that should be visible in the risk decision. ### 7. Monitor Incidents, Near Misses, and Change Operational risk changes as the business changes. Useful warning signs may include: - repeated incidents or errors - near misses - control exceptions - supplier-performance deterioration - exercise findings - increasing manual work - staffing changes - technology changes - new or concentrated dependencies Organizations may also use key risk indicators where they provide useful warning of increasing exposure. The measure should help someone make a decision rather than exist simply because a dashboard needs another metric. [![BCMMetrics](https://no-cache.hubspot.com/cta/default/46330580/interactive-184465045097.png)](https://mha-it.com/hs/cta/wi/redirect?encryptedPayload=AVxigLKcx1ezY1rmqvmA4oC9aRF%2FcrWaM6sE7PsdJNSP2EyoHL1nncJ8rZhNtwSG8y0kE6KWZFNu%2B6QBYH4j0MTAMXIJnFGadDu%2Fg8uZtb8%2F9vnMao2TNkjMVzDr8HyTY8afCAoBr3%2FyBqI05FDMwKGPJM1s1tyi%2BTtWge4LrmEIOSTwk0nj2Ria7x8xDViJJcc%3D&webInteractiveContentId=184465045097&portalId=46330580) ## What Should You Do if You Notice an Operational Risk Incident or Error? Follow the organization's established incident, escalation, and reporting procedures. Depending on the situation, that may include: - protecting people and stopping unsafe activity - limiting further operational impact when authorized to do so - notifying the appropriate manager, risk owner, service desk, security team, or incident-response function - preserving relevant information or evidence - documenting what happened - tracking corrective actions after the immediate issue is controlled The exact response will depend on the event and the organization's procedures. Employees should know where operational incidents are reported before a serious event occurs. ## When Do You Need a Formal Operational Risk Assessment? Day-to-day risk management and formal assessment are related, but they are not the same task. A formal operational risk assessment provides a structured way to identify and evaluate the risks that could disrupt critical activities, assess their consequences, and determine where treatment is needed. That process becomes particularly useful when: - the organization has never assessed risks to critical operations - important processes or technologies have changed - new suppliers or facilities create different dependencies - incidents or exercises expose previously unknown weaknesses - management needs a prioritized view of operational exposure For the detailed assessment process, see [The Missing Piece: Why You Need a Risk Assessment for Operations](https://mha-it.com/blog/operational-risk-assessment). ## Choose the Right Response to the Risk Once a significant operational risk is understood, the organization needs to decide what to do about it. Depending on the circumstances, that may mean avoiding the exposure, reducing it with additional controls, transferring or sharing portions of it, or consciously accepting the remaining risk. The appropriate choice depends on the organization's risk criteria, the importance of the affected operation, the effectiveness of existing controls, and the cost and feasibility of further treatment. For more detail on treatment options, see [Risk Mitigation in Practice: 4 Strategies Explained](https://mha-it.com/blog/four-types-of-risk-mitigation). For the broader end-to-end risk process, see [Risk Management Process: 6 Steps for Business Continuity](https://mha-it.com/blog/risk-management). ## Operational Risk and Business Continuity Operational risk management and business continuity address different parts of the same problem. Operational risk management helps the organization identify and reduce exposures that could interfere with normal operations. Business continuity addresses what the organization will do when an important activity is disrupted despite those controls. One does not replace the other. A strong continuity program uses information about operational risk to strengthen recovery strategies, plans, exercises, workarounds, and investment decisions. ## Frequently Asked Questions ### What is operational risk? Operational risk is the possibility that failures or disruptions involving people, processes, technology, third parties, facilities, or external events will interfere with the organization's ability to operate as expected. ### What are examples of operational risk? Examples include key-person dependencies, process errors, application outages, cyber incidents, supplier failures, ineffective manual workarounds, equipment breakdowns, utility failures, and loss of access to an important facility. ### What are the main causes of operational risk? Operational risk commonly originates in people, processes, technology, third-party dependencies, facilities, utilities, and external events. Several sources may contribute to the same disruption. ### How can a company reduce operational risk? Organizations can reduce operational risk by understanding critical dependencies, removing avoidable single points of failure, improving procedures and cross-training, creating realistic redundancy and workarounds, managing third parties, validating controls, and acting on incidents and emerging warning signs. ### Can operational risk be eliminated? No. Organizations can reduce many operational risks, but some residual exposure will remain. The goal is to understand that remaining exposure and make an informed decision about whether additional treatment is required or whether the risk can be accepted. ### Is operational risk management the same as business continuity? No. Operational risk management focuses on understanding and reducing operational exposure. Business continuity focuses on maintaining or recovering important operations when disruption occurs. The two disciplines should inform each other. ## Further Reading - [The Missing Piece: Why You Need a Risk Assessment for Operations](https://mha-it.com/blog/operational-risk-assessment) - [Single Points of Failure: Protecting Yourself from Hanging by a Thread](https://mha-it.com/blog/single-points-of-failure) - [Risk Mitigation in Practice: 4 Strategies Explained](https://mha-it.com/blog/four-types-of-risk-mitigation) - [Risk Management Process: 6 Steps for Business Continuity](https://mha-it.com/blog/risk-management) - [Inherent Risk vs. Residual Risk](https://mha-it.com/blog/inherent-risk-vs-residual-risk) --- ![](https://mha-it.com/hubfs/Richard%20Long-MHA-Consulting.png) #### Richard Long Richard Long is one of MHA’s practice team leaders for Technology and Disaster Recovery related engagements. He has been responsible for the successful execution of MHA business continuity and disaster recovery engagements in industries such as Energy & Utilities, Government Services, Healthcare, Insurance, Risk Management, Travel & Entertainment, Consumer Products, and Education. Prior to joining MHA, Richard held Senior IT Director positions at PetSmart (NASDAQ: PETM) and Avnet, Inc. (NYSE: AVT) and has been a senior leader across all disciplines of IT. He has successfully led international and domestic disaster recovery, technology assessment, crisis management and risk mitigation engagements. ## Start building a stronger future ##### Navigate uncertainty with an expert - schedule your free consultation with our CEO, Michael Herrera. [Schedule your consultation](https://mha-it.com/contact) ## Other resources you might enjoy ![Operational Risk Consultant: A Cool Job of the Future](https://46330580.fs1.hubspotusercontent-na1.net/hub/46330580/hubfs/Imported_Blog_Media/operational-risk-consultant.jpg?height=245&name=operational-risk-consultant.jpg) #### [Operational Risk Consultant: A Cool Job of the Future - MHA Consulting](https://mha-it.com/blog/operational-risk-consultant) [Read More](https://mha-it.com/blog/operational-risk-consultant) ![MHA consultant leads an executive operational risk assessment covering technology, people, vendors and supply chain, facilities, and processes.](https://46330580.fs1.hubspotusercontent-na1.net/hub/46330580/hubfs/Why%20You%20Need%20a%20Risk%20Assessment%20for%20Operations.png?height=245&name=Why%20You%20Need%20a%20Risk%20Assessment%20for%20Operations.png) #### [The Missing Piece: Why You Need a Risk Assessment for Operations](https://mha-it.com/blog/operational-risk-assessment) [Read More](https://mha-it.com/blog/operational-risk-assessment) ![operational risk management](https://mha-it.com/hs-fs/hubfs/Imported_Blog_Media/operational-risk-management-1.jpg?height=245&name=operational-risk-management-1.jpg) #### [Every Single Day: Make Risk Management Part of Your Company’s Culture](https://mha-it.com/blog/operational-risk-management) [Read More](https://mha-it.com/blog/operational-risk-management) ## Ready to start focusing on higher-level challenges? 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