Risk management - it's a disaster, claims report

The University of Leicester Scarman Centre has published a special issue of its journal Risk Management which claims that the recent Hatfield rail crash, the Bristol Royal Infirmary Inquiry and continuing BSE crises are the result of poor operational risk management.

Edited by Martin Gill, Operational Risk presents a collection of papers outlining the views of regulators, practitioners and researchers including Dr Clive Smallman, senior research associate at the Judge Institute of Management Studies in Cambridge and Jeremy Quick of the Financial Services Authority.

The report claims that effective operational risk management can not only mitigate negative risk, but might also offer companies a significant advantage over their immediate competitors.

Dr Martina McGuinness from the Sheffield University Management School told SMT: "Train crashes at Paddington and Hatfield have left the rail industry in crisis, and have clearly demonstrated the disastrous human consequences of poor operational risk management." Dr Smallman added: "At the heart of such crises are basic failures of processes and, fundamentally, of people".

The financial sector has also witnessed crises including the collapse of BCCI and Barings Bank. Jeremy Quick said the changing pattern of risk in the banking sector has created a new challenge for regulators and supervisors. Quick suggests a fresh methodology is necessary which, if adopted, will allow supervisors to continue "to be a few steps behind the industry, but closer than in the past".

Operational Risk also asks whether banks are rushing into new technology at the expense of managing the risks involved.

Keith Blacker, an independent consultant and a doctor of business administration at Henley Management College, investigates recent Internet banking scams at Barclays, Abbey National's Cahoot and Halifax, and examines how they approach and mitigate operational risks.