Four steps companies can take to better manage operational risk, from iHS.
After corporate accounting scandals grabbed the headlines in the early 2000’s, most companies established the necessary financial management discipline to avoid such disasters. But from investors’ perspective, the issue of financial performance risk is far from being fully addressed.
Expanded investor scrutiny now includes all forms of capital contributing to value creation, from products to people. This requires much broader corporate performance reporting, and failure to comply can result in significant risks to long-term financial performance.
These risks are particularly evident in asset-intensive industries such as energy, chemical and manufacturing with their higher rates of operational risk. In some areas, such as declining injury rates in U.S. industry, companies are performing well. Yet catastrophic events, like the Fukushima Daiichi nuclear disaster, still have the potential to adversely affect entire industries and economies.
It’s only a matter of time until these major events trigger reforms similar to those following the accounting scandals of the early 2000’s. Companies should take proactive steps to better manage operational risk now.