Operational Risk Examples

As well as posing risk for directors, weak delegated authorities also increase operational risk.  For example:

  1. A fast moving consumer goods company had difficulty controlling the rebates and discounts offered to customers by sales representatives.  The sales representatives did not want to comply with the limits on trade spend and frequently offered terms outside of the limits, costing the company hundreds of thousands of dollars each year.  Clarifying the limits and communicating them more effectively was the first step in eliminating the losses, rather than accepting them as a cost of doing business.
  2. A financial services company lost hundreds of thousands of dollars when a call centre worker offered a refund to a customer, without having authority to do so.  The company then felt compelled to offer the refund to thousands of other customers.  The worker did not understand that the organisation would suffer the loss, or that they had no authority to offer the refund.  The loss would have been avoided if the matter had been referred to the worker’s manager, as it should have been.
  3. An organisation running large, complex projects had few delegated authorities and it was not clear who made or was accountable for many decisions.  One project lost millions of dollars.  A review revealed that several avoidable mistakes had been made.  People assumed (wrongly) that others were attending to things that were not done.  These mistakes would have been prevented by an effective delegations system of decision-making and accountability.