6 Types of Process Risk
John Spacey, updated on March 27, 2021
Process risk is the potential for losses related to a business process. It is usually considered a type of operational risk as most processes are part of the day-to-day operations of a business. The following are a few common types of process risks.
1. Infrastructure RiskInfrastructure outages such as failure of basic communications linkages can trigger process failures.
2. Information Technology RiskThe risk of technology errors or security incidents that disrupt or invalid processes.
3. Human ErrorErrors or oversights can result in low quality or failed processes. For example, if a stock trader incorrectly enters an order the order may execute at the wrong price or quantity, potentially representing a significant loss. It is often possible to reduce human error by designing processes that are human-friendly and error tolerant.
4. Workplace SafetyPotential threats to human health and safety such as a physical accident or injury due to repetitive strains.
5. Mechanical FailureBreakdown of equipment can disrupt processes such as manufacturing or supply chain operations.
6. Process QualityIn many cases, it is the quality of a process itself that leads to failures. A low quality process may not properly anticipate real world conditions and may break down with changes in the business environment. For example, a customer service process may work under normal conditions but may fail when call volumes spike.
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