Definition
Operational resilience refers to a business’s ability to continue or quickly resume critical operations during and after a disruption. It involves planning for, adapting to, and recovering from various potential hazards including technical issues, natural disasters, or cybersecurity threats. The main goal is to limit the impact of any disruption on the company’s services, reputation, and financial stability.
Key Takeaways
- Operational Resilience is an organization’s ability to prevent, respond to, recover, and learn from operational disruptions, thereby ensuring the continuity in the delivery of key services and maintaining clients’ trust.
- It goes beyond just financial robustness and involves considering a wide range of possible internal and external shocks, such as cyber threats, IT failures, natural disasters and changes in the political, economic, and regulatory environment.
- The implementation of Operational Resilience requires a holistic approach. It includes setting clear roles and responsibilities across the organization, embedding a strong risk culture, and having effective coordination amongst teams, rigorous testing of contingency plans, as well as continuous learning and adaption to emerging risks.
Importance
Operational resilience is a crucial term in finance because it measures an organization’s capability to maintain its core business operations during a disruptions or crisis, such as technological breakdown, cyber attack, or even natural calamities.
This concept is not only about surviving through a crisis, but also efficiently adapting and responding to these unexpected events in a way that minimizes the impact on the business, preserves customer trust and business reputation.
Moreover, since it also includes the ability to restore normal operations as quickly as possible, it can greatly affect the financial stability, growth, and competitiveness of a company.
Given the complex and unpredictable nature of today’s business environment, having robust operational resilience in place is increasingly important.
Explanation
Operational resilience refers to the ability of an organization to continue operating and delivering critical operations during a disruption. This can pertain to various types of disruptions, including technological problems, natural disasters, cyber attacks, or other operational issues. The purpose of operational resilience is to limit the impact of such disruptions on the business and its customers, ensuring continuity of service under various unexpected circumstances.
It aims to protect the company’s reputation, market position, and financial stability through effective risk management. In financial institutions, operational resilience is becoming increasingly crucial due to complex, interconnected operational landscapes and the potential for systemic and consequential disruptions. This approach differs from previous risk management methods that focused on individual risks, like cyber risk or credit risk.
Instead, it looks across all potential disruptions, considering their potential impacts on business services. It is used to help institutions plan for unforeseen disruptions, test those plans, and adapt operations accordingly. It enables an assessment of how well a business can respond to operational disruptions and ensures institutions can deliver vital services even in challenging times.
Examples of Operational Resilience
Barclays Bank London: In order to strengthen their operational resilience, Barclays Bank plc initiated a resilience transformation program after the 2008 financial crisis. The program focused on identifying and mitigating the potential risks to the bank’s operations. This involved rigorous stress testing and scenario planning, enhancement of IT systems, and implementing clear reporting and governance structures. As a result, Barclays was more resilient during the unexpected events, such as the pandemic, where the bank continued to deliver important customer services without significant interruption.
BP’s Deepwater Horizon oil spill: In 2010, BP dealt with one of the largest environmental disasters in US history. Lack of operational resilience led to a failure in managing the fallout. However, in the aftermath, BP developed a comprehensive operational resilience strategy that included investing in advanced technology to better monitor and manage oil rig operations and developing comprehensive disaster response protocols, thus preventing similar future incidents.
Amazon Web Services: Amazon Web Services (AWS) exemplifies operational resilience by ensuring continuous operation even during periods of high demand or potential disruptions. AWS invests heavily in data redundancy, disaster recovery, and cybersecurity measures to ensure they can quickly recover from any operational disruptions, thus ensuring consistent service delivery to their customers. Amazon’s IT resilience was particularly tested and proved during the COVID-19 pandemic where there was a massive surge in online activities. Despite this unexpected increase in demand, AWS managed to provide reliable services, demonstrating impressive operational resilience.
FAQs about Operational Resilience
What is Operational Resilience?
Operational Resilience is the ability of an organization to continue to perform its key operations during a disruption. It involves preparing for, responding to, and recovering from events that could cause operational disruptions, such as natural disasters, cyberattacks, and other unforeseen challenges.
Why is Operational Resilience important in finance?
In the financial sector, Operational Resilience is vital as disruptions can risk the stability of financial systems. Financial institutions should be able to continue their essential services to limit inconveniences to consumers and maintain trust in the financial system during disruptions.
How can a business improve its Operational Resilience?
A business can improve its Operational Resilience by having a clear understanding of its key operations and potential risks, establishing a robust response plan, testing the plan regularly, and updating the strategy based on test results and evolving risks.
What role do regulators play in Operational Resilience?
Regulators establish guidelines and standards to help guide financial institutions in developing their Operational Resilience strategies. They also conduct assessments and audits to ensure these strategies are impactful and fit for purpose.
What are the elements of Operational Resilience?
Operational Resilience typically involves elements like business continuity planning, crisis management, IT disaster recovery, and supply chain risk management. It necessitates a holistic approach that includes all areas of an organization.
Related Entrepreneurship Terms
- Business Continuity Planning
- Risk Management
- Cybersecurity
- Disaster Recovery
- Operational Risk
