Operational Risk Management:
Why Investors Care
Operational risk management is often misunderstood as a compliance exercise that is documented once and then filed away. In reality, it is a systematic and ongoing process used to identify, assess, mitigate, and monitor risk stemming from daily operations. More specifically, it is the risk of loss, disruption, or underperformance resulting from failures in people, internal processes, systems, or external events.
These risks show up quietly in everyday operations: unclear decision rights, informal workarounds, undocumented procedures, siloed responsibilities, and over-reliance on key individuals. Left unmanaged, they compound, eroding safety, reliability, and financial performance over time.
Effective operational risk management starts with visibility. Organizations must understand how work actually gets done and how it flows across departments, where handoffs occur, and where controls are informal or inconsistent. This requires moving beyond assumptions and examining how operations function in practice, not just how they are designed on paper.
A Common In-Field Observation: While performing business process improvement services, we begin with a deep dive into what the present business processes are. This begins with a discovery phase, interviewing both leadership and working-level employees. What leadership says the job process is, can often differ from what the working-level employee says the job process entails; not because employees aren't doing their jobs properly, but because processes evolve in real-time and employees have to make decisions to pivot, and/or bottlenecks sometimes dictate a workaround, and this information doesn't always flow back up the chain of command or get documented in a formal process write-up.
Once operational risks are identified, they are categorized (health, safety, security, environmental protection, community relations, business continuity, existential threat) and prioritized to implement practical controls aligning with optimal work methods of the team.
Why Do Investors Care?
An investor's job is to assess whether the foreseen upside of an investment is justified by the immediate cost and the long-term downside exposure. In other words, they must know where their likely failures and losses are likely to come from.
The investment could be a physical asset, i.e., building(s), equipment, information, data, intellectual property, vehicles, or more; a financial asset, i.e., cash, liquidity, revenue, contracts, or credit; or human capital (people).
Wise investors recognize their role is not to eliminate risk, but to see it, understand it, quantify it, and manage exposure to minimize surprises.
They are not just asking “Can this asset make money?” but also “How likely is it to lose money, why, and what can we do to avoid, control, or respond to it?”
Effective operational risk management is not just a defensive measure; it is a key indicator of long-term value protection and operational maturity.
Wise investors look beyond strategy to assess whether leadership has a firm grasp and control over business operations. Weak operational risk management often signals hidden liabilities, exposure to safety incidents, regulatory penalties, unplanned downtime, cost overruns, or business interruptions that can erode value.
Conversely, organizations that actively identify, prioritize, and manage operational risk demonstrate discipline, transparency, and repeatability in how they operate, signaling strong leadership.
Operational risk management succeeds best when it is embedded into leadership decision-making and frontline execution. Policies and frameworks provide structure, but internal culture determines outcomes. When teams understand why controls exist and leaders reinforce accountability, risk management becomes part of daily operations rather than a one-time or periodic initiative.
About Productive Outcomes
Productive Outcomes serves as an Owner's Representative; an integral member of the owner’s organization to monitor, measure, and manage the financial performance of an enterprise, project, or portfolio using discipline and proven best practices. We provide roadmaps to success in solving difficult and unusual problems in support of physical asset management, encompassing the entire life cycle range from new power project development, through new construction and operating phases, to power plant decommissioning at end of life.