Operational Risks

Unplanned downtime and production losses caused by the failure of critical machinery and equipment, leading to repair costs and business interruption.

Equipment/Machinery Failure

The risk that critical machinery or equipment fails unexpectedly, causing production downtime or safety incidents. In industries relying on heavy machinery or continuous processes, a major equipment failure can halt output and incur costly repairs. Proper maintenance schedules, condition monitoring, and having spare parts or backup systems are typical risk mitigation strategies . Some companies also carry machinery breakdown insurance.

Product Recall Risk

A specific risk that a product may have to be recalled from the market due to safety issues or defects, leading to significant costs and reputational harm. Recalls often involve regulatory oversight (for example, FDA recalls in food/pharma or NHTSA recalls in autos) and can severely impact consumer trust and finances (notification costs, refunds, lawsuits).

Third-Party Vendor Risk

Risk arising from dependence on external vendors, contractors, or service providers. If a critical third-party fails to deliver, suffers a breach (in case of data vendors), or doesn’t meet obligations, it can disrupt your business or introduce liabilities. Includes risks like a cloud provider outage or an outsourced process error affecting operations or data security.

$50,000 per hour of downtimeLearn More →

High Severity Risks

Equipment Failure

✅

Breakdown or malfunction of critical equipment causing production stoppage and repair costs.

Quality Control Failure

✅

Failure to meet quality standards or specifications for products or services, leading to defects, recalls, or customer dissatisfaction.

$2.6 million average for quality issuesLearn More →

AI bias, AI model corruption, malicious use of AI, AI governance failure, AI ethics risk

All, especially Tech, Financial Services, Healthcare

Business Interruption

The financial loss a company suffers when its operations are disrupted . This includes lost revenue and extra expenses during downtime, and even long-term loss of customers. Disruptions can be caused by events like fires, natural disasters, equipment breakdown, cyber incidents, or supply failures. Effective business continuity planning is needed to mitigate this risk.

Cargo & In-Transit Loss

Risk of physical loss or damage to goods, raw materials, or equipment while being transported over land, sea, or air, or while stored at a temporary location.

Client Attrition Risk

The risk of losing existing customers or clients at a higher-than-expected rate, which can shrink revenue and increase acquisition costs. High client attrition may indicate service issues, better offers from competitors, or changes in client needs. Mitigation involves customer success efforts, engagement, and addressing pain points to improve loyalty.

Innovation Risk

The risks tied to innovative initiatives – for example, investing in new product research or emerging tech that may not pan out. Fast-paced innovation can be high-risk/high-reward and might require adapting risk management to deal with uncertainty . Also includes risk of current products becoming obsolete due to new technology.

Operational Risk (General)

Broad risk of loss resulting from failed internal processes, human errors, system failures, or external events disrupting day-to-day operations . Unlike strategic or market risks, firms try to avoid operational failures entirely. Examples: process breakdowns, technology crashes, or mistakes that cascade into larger problems (e.g., a minor error causing a major service outage).

Pandemic/Health Crisis Risk

The risk of a widespread infectious disease outbreak that disrupts business operations. Pandemics (like COVID-19) can cause workforce shortages (ill employees), supply chain breakdowns, regulatory restrictions (lockdowns), and sudden changes in customer demand. Companies may face operational shutdowns and financial losses during such crises.

Process & Procedural Failure

Losses arising from inadequate or failed internal processes, resulting in errors, rework, poor quality, customer dissatisfaction, or compliance breaches.

Product Liability & Recalls

Legal and financial exposure from harm caused by defective or unsafe products, leading to lawsuits, recalls, reputational damage, and regulatory penalties.

Product Quality Risk

The potential failure to meet quality standards or specifications for products or services, leading to defects, recalls, or customer dissatisfaction . Poor quality can result in returns, warranty costs, and reputational damage. This risk is often mitigated by strict quality control processes and continuous improvement.

Project Management Failure

The risk that a project will fail to meet its objectives regarding scope, schedule, and budget, leading to financial losses and strategic setbacks.

Single cloud provider dependency, CSP outage risk

All using cloud infrastructure

Under-Resourcing Risk

The risk of not allocating enough resources (human, financial, or material) to meet operational demands, especially during peak periods. This can lead to missed deadlines, poor service, employee burnout, or inability to capitalize on opportunities . For example, a retail operation might be understaffed during a holiday rush, causing customer service to suffer. Mitigation includes flexible staffing (temp agencies, cross-training), outsourcing, or automation to handle variable workload.

Unexpected Demand Surge

The risk that a sudden increase in customer demand outpaces the company’s supply capacity, leading to stockouts, delays, or overloaded systems. While high demand is a good problem to have, if unprepared it can cause lost sales or service failures. (E.g., a viral trend causes a product to sell out unexpectedly.) Strategies to mitigate include maintaining safety stock, scalable cloud infrastructure for online services, or flexible supply agreements .

Utility Outage Risk

Risk that loss of essential utilities (electricity, water, gas, telecommunications) will disrupt business operations. For instance, an extended power outage can halt manufacturing lines or data centers. Water supply issues can affect manufacturers or data center cooling. Companies often use backup generators, UPS systems, and alternate utility providers to mitigate this . (Utility outages can be related to external factors like grid failures or disasters.)

Low Severity Risks

Customer Satisfaction Risk

Risk that poor customer experiences or service issues lead to low customer satisfaction. This can result in lost sales, negative reviews, and damage to brand reputation. Causes might include difficult purchasing processes, poor product quality, inadequate support, or unmet expectations. Companies monitor CSAT/NPS scores to gauge this risk.

Labor Relations Risk

The risk of disputes with employees or labor unions leading to strikes, work stoppages, or other labor actions that disrupt operations. This typically applies to unionized workplaces or industries with strong labor organizations. Failure to maintain good labor relations or to negotiate contracts can result in costly shutdowns or slowdowns, as well as reputational damage as an employer.

Market Acceptance Risk

The risk that a new product or expansion into a new market fails to gain the expected customer acceptance or demand. For example, launching a product that doesn’t meet customer needs or enters an already saturated market could result in low sales. (Essentially, the product or service “misses the mark” with consumers.)

Seasonal Risk

The challenges and inefficiencies that arise from seasonal fluctuations in business activity . For businesses with strong seasonality, off-peak periods can lead to excess capacity or cash flow issues (and peak seasons strain capacity). For example, a ski resort faces risk in a low-snow winter, or a holiday retailer has quiet summers. Managing seasonal risk may involve scaling operations down/up, diversifying offerings for year-round revenue, or saving peak-season profits to cover slow periods.

Time-to-Market Risk

Risk of losing competitive edge or sales opportunities by being too slow to bring a new product or service to market. Delays in development or launch can allow competitors to capture market share or render the offering less relevant to customer needs.