Risks: does your business have immunity? Operational risk (VII)

Risks: does your business have immunity? Operational risk (VII)

Rolandas Mištautas, Head of Law Firm KONSUS LEGAL

If the management of business costs becomes ineffective as a result of inappropriate use of technology, internal processes, systems, employee actions or any uncontrollable external factors, the business is exposed to what is known as operational risk, including one of its components - legal risk.

In cases where the events related to operational risk are exceptionally material and significant, they may have a negative impact on the 'capital adequacy ratio' and related activities.

A clear business structure with precise, well-defined employee rights, duties and responsibilities reduces the likelihood of incorrect decisions being made about certain processes and activities.

A cohesive, balanced corporate infrastructure, with clearly defined roles and responsibilities for all human resources, enables managers to see and continuously assess the full functionality of their employees and to regulate and control the company's processes more effectively.

At the same time, they can avoid legal risks for actions that are not taken by the managers themselves. Unfortunately, there are cases where, simply by failing to take care to eliminate operational risks from their business, especially the legal aspects of those risks, the blame or responsibility is undeservedly attributed to... the business managers.

Only with a clear, socially effective business enterprise infrastructure, the opportunities to exercise legal, financial and personnel control over business processes, to detect, record and correct so-called problem and critical points in time increase. And with the help of internal educational tools, motivational systems, clear alignment of roles, duties and responsibilities throughout the company, they can be successfully eliminated before the first losses occur.

Operational risk management is a relatively new area of risk management, and therefore relatively few legal professionals in Lithuania are capable of assisting in the event of an operational risk, especially in legal aspects.

Meanwhile, as a particularly important factor for the continuity, stability and comprehensive security of business processes, this type of business risk must also be identified in a timely manner. Once identified, it should be assessed, analysed and the best ways and means of eliminating it should be planned. And, if necessary, the use of experienced specialists.

Updated: 2023-03-31