It’s often said that taking risks can yield significant business benefits, but for those in hazardous industries, managing and mitigating operational risks effectively is what makes all the difference.
The past couple of years have brought immense disruption and change, which have created great operational risks and challenges for companies. And in 2023, we’ll likely see a continuation of this trend. This year, companies will have to do more with less as they face an economy entering a recession, a shrinking workforce, high interest rates and other impacts.
As companies continue to deal with challenging economic conditions (whether through layoffs or other difficult financial decisions), maintaining safety and operational resilience will be paramount, but more difficult to achieve. To paint a better picture of the current operational risk landscape, we connected with Sphera’s subject matter experts to determine which risks should be on operational risk management (ORM) professionals’ radars this year.
And, without further ado, here are the top 10 operational risks for 2023 (in no particular order):
1. Economic Slowdown
In last year’s article, we included an “economic supercycle,” or a “prolonged phase of growth,” as a top operational risk. Since last year’s article was published, the economy has begun to shift in the opposite direction, and it seems likely that a recession is on the way. In fact, a survey of economists conducted by the World Economic Forum (WEC) found that nearly two-thirds of them expect a recession to occur in 2023.
As companies begin to enact layoffs due to a weakening economy, they will have to face the reality of maintaining safe operations with fewer employees. The effects of inflation coupled with ongoing supply chain disruptions mean businesses may struggle to get the parts they need to run their plants safely and effectively.
A lack of necessary parts and the labor needed to maintain machinery can lead to less reliable operations. This can then have a domino effect on the rest of the business and lead to negative impacts on worker safety, profits, and ultimately, a company’s reputation.
As companies grapple with challenging economic headwinds, they must make sure that safety doesn’t fall by the wayside. Improving process safety management and making sure that the proper risk assessments are in place will be key to reducing and mitigating operational risk during an economic slowdown.
2. Not Managing and Using Data to Your Advantage
Without proper management, data can often just amount to “white noise” and not provide useful insights for decision-making and planning. It’s essential that companies know how to leverage the right data at the right time, especially in today’s rapidly shifting economic climate.
Whether it’s managing supply chain data or maintenance, repair and operations (MRO) master data following a merger or acquisition—in 2023 and beyond, leveraging data effectively will be key to mitigating operational risk. Given the increasing complexity and volume of data companies must contend with, they can no longer rely on disparate, manual solutions for managing it.
3. Supply Chain Risk
In the past couple years, companies have had to contend with a litany of supply chain disruptions, including a global pandemic and extreme weather—to name a few—and companies can expect no less in 2023. As Sphera Global Supply Chain Risk Advisor Heiko Schwarz said in an episode of the SpheraNOW ESG podcast, “the new normal is having a supply chain crisis ongoing.”
As supply chain risks continue to grow, responding to them effectively is no longer enough. To protect revenue and reputation, companies will need to manage supply chain risk proactively and prepare for disruptions before they occur. Digital supply chain risk management (SCRM) solutions can provide the insights that companies need to identify, manage and mitigate risk in increasingly complex supply chains, allowing them to turn supply chain risk into a competitive advantage.
4. Third-Party Risk
When companies purchase from or outsource to third parties, they must then worry about the risk that those third parties create. Third-party risk can materialize in various forms, including compliance risk, reputational risk and financial risk, among others. And it’s not just manufacturers that have to manage third-party risk, but any business that relies on other companies to produce goods or provide services.
With many companies expanding their third-party relationships, the need to effectively manage third-party risk is becoming even more important. As a result, identifying, assessing and mitigating third-party risks will be critical to companies’ supply chain risk management strategies in 2023.
This year marks the third year in a row that cybersecurity has made it on our list of top operational risks. And for good reason—cyberattacks show no sign of slowing down. Global cyberattacks rose by 38% in 2022 when compared to 2021, according to Check Point Research (CPR), a cyber threat intelligence report provider.
Additionally, the World Economic Forum’s (WEC) Global Cyber Outlook 2023 report warned that “geopolitical and economic uncertainty around the world is exacerbating the threat of potentially catastrophic cyber-attacks, increasing the risk for businesses across sectors.”
With the risk of cyberattacks rising worldwide, it’s imperative that companies conduct a security and vulnerability risk assessment in order to prevent attacks before they happen.
6. The Ongoing Energy Crisis
An energy crisis emerged in 2022 due, in part, to Russia’s invasion of Ukraine and “post-lockdown energy demand exceeding supply,” which led to increased energy prices, according to the Centre for European Reform, an independent think tank. While the EU was able to meet energy demands in 2022 and reduce its dependence on Russian oil, it may be facing a greater crisis in 2023, according to a report from the International Energy Agency (IEA). The agency said that the EU “faces a potential shortfall of almost 30 billion cubic metres of natural gas in 2023.”
Increasing liquefied natural gas (LNG) production is one way for the EU to address its energy crisis. For example, Germany was able to speed up the construction of LNG facilities in order to meet energy demands after Russian oil imports decreased, and other European countries are looking to do the same in 2023, according to the U.S. Energy Information Administration (EIA).
As demand and production increase, LNG operators must make sure operations remain as safe and reliable as possible. Given how much day-to-day operations can vary for LNG facilities, reducing operational risk by ensuring adherence to digital permit-to-work best practices and the completion of asset maintenance and other safety measures will be critical to providing much-needed energy reliably without jeopardizing safety.
7. Loss of Institutional and Tribal Knowledge
In last year’s article, we called out workforce turnover as a top operational risk. In 2023, companies are still grappling with this issue, especially as older workers retire or others are laid off.
Ensuring that processes and best practices are documented, maintained and shared with new hires poses great challenges for companies, especially if they’re still using paper documentation or point solutions that don’t communicate with other systems. These siloed systems create data gaps and reduce data visibility, which leads to increased risk.
Digital documentation of safe work processes and best practices for maintenance, inventory management and supply chains is key to preserving institutional knowledge and maintaining safe and productive operations in the long term.
8. Continued Reliance on Outdated Solutions
In addition to institutionalizing knowledge as experienced employees leave, digitalizing the entire safe work process is becoming a priority as the focus on companies’ environmental, social and governance (ESG) performance grows.
And, as companies face having to do more with less, digitalizing safe work processes can help them prevent incidents and streamline operations. By eliminating paper permits and adopting a digital solution, companies can save valuable time, share data more easily across the facility, improve processes, increase safety and reduce operational risk.
9. Not Adequately Preparing for Disruptions
Recent years have taught us that it’s not a matter of if disruptions will occur, but when. Therefore, managing inventory levels effectively and preparing for disruptions before they occur is now more important than ever. Do you have alternate sources for your raw materials lined up if your primary source is unavailable? What about critical MRO parts? As with traditional supply chain risk, when suppliers are unable to deliver components or services, the purchasing enterprises suffer.
Understanding where the risks may be hidden throughout your supplier network is key. Having systems and plans in place to provide greater visibility into vendors, necessary materials and spare parts will be critical to bouncing back after a disruption and building greater resiliency in the long term, which is becoming increasingly important as disruptions increase across the globe.
10. Regulatory Change and Compliance
The need to be compliant with current and future regulations isn’t going away. In fact, this marks the second year that regulatory change has made it onto our list of top operational risks. As the number of regulations grows across the globe, the risk of non-compliance grows along with it.
Companies simply cannot afford to jeopardize their regulatory compliance by using out-of-date, manual solutions. Companies must be able to accurately document safe work processes and back up their compliance efforts with an audit trail—two goals that are much easier to attain when process safety and operational risk management processes are digitalized.
Managing Operational Risks Effectively in 2023
While the top operational risks posed in 2023 present great challenges for companies, there are also great opportunities as well. Forward-thinking companies that stay ahead of risk will find themselves better equipped to manage and mitigate today’s risks, as well as tomorrow’s.
And for those tasked with maintaining safe operations amid challenging economic conditions, having the right data and software solutions will be essential to ensuring that valuable knowledge and best practices don’t walk out the door as experienced employees leave their roles.
After all, better data and tools empower better decision-making, which is even more important when the stakes—and operational risks—are so high.
To learn more about current process safety and operational risk management trends, read our 2022 Safety Report.