Operational risks every business leader should prepare for

Last Updated on 26 October 2025

Operational risks are present in all areas of an organisation, arising from failures in internal processes, people, and systems. These risks can disrupt productivity, cause financial loss, and damage a company’s reputation. Unlike market or credit risks, operational risks are often tied to the day-to-day activities that keep a business running. As environments change, leaders must remain aware of a wide range of operational threats to ensure business continuity and growth. 

These threats can come from many sources, including human error, technology failures, and external events like supply chain disruptions. A simple mistake in data entry can lead to significant financial miscalculations, while a major system outage can halt production entirely. Effective management of these potential problems is a continuous process of identification, assessment, and mitigation. 

People-related vulnerabilities 

An organisation’s workforce can be a source of significant operational risk. Human error is a persistent factor that can lead to workplace accidents, data breaches, and costly production mistakes. These errors often stem from inadequate training, fatigue, or unclear procedures. For example, an employee under pressure might skip a verification step in a payment process, leading to a substantial financial loss. Memory lapses in stressful environments can also cause staff to forget important steps, impacting efficiency and data security. 

Beyond unintentional mistakes, organisations also face risks from skill shortages and high employee turnover. When experienced staff leave, they take valuable knowledge with them, which can weaken process safety and operational stability. This “brain drain” requires companies to invest more in training for new employees, who may be more prone to errors in high-risk environments. 

Process and system failures 

Internal processes and the systems that support them are another major category of operational risk. Outdated or inefficient processes can create bottlenecks, reduce output, and increase costs. When procedures are poorly designed, they can become a source of repeated errors and frustration for employees, leading to lower productivity. 

Dependence on technology also introduces considerable risk. System failures, whether from hardware breakdowns, software glitches, or cyberattacks, can bring operations to a standstill. A malware attack, for instance, could encrypt essential data or shut down an entire network, preventing a company from servicing its customers. The financial and reputational damage from such an incident can be severe, affecting customer trust and potentially leading to regulatory penalties. 

External threats and supply chain disruption 

Businesses do not operate in a vacuum and are exposed to numerous external risks. The globalised nature of commerce means that disruptions in one part of the world can have far-reaching consequences. Events such as geopolitical instability, natural disasters, or economic volatility can interrupt the flow of goods and services. Nearly 80% of organisations experienced at least one supply chain disruption in a recent 12-month period. CSO 2025 latest release provides national supply chain figures. 

Reliance on third-party vendors is another point of vulnerability. A failure at a key supplier can halt production or service delivery, causing delays and financial losses. These external partners can also introduce other types of risk, including cybersecurity breaches and compliance failures. Without proper oversight, a problem originating with a supplier could quickly become a major issue for the entire business. 

Building a resilient operational framework 

Addressing operational risk requires a structured and proactive approach. Leaders should foster a culture where risks are openly discussed and managed. This involves establishing clear processes, providing continuous training, and investing in resilient technology. Regular risk assessments help to identify vulnerabilities before they can be exploited or cause a failure. 

Developing contingency plans for different scenarios is also an important step. This includes creating strategies for managing supply chain interruptions, responding to cyber incidents, and handling system outages. Thinking through these possibilities allows an organisation to react more quickly and effectively when a disruption occurs. Access to resilience and risk management advisory can help organisations progress with confidence. An integrated approach ensures that the business can withstand shocks and maintain its operations, protecting its value and reputation in a complex environment.