Cause, consequence and control: towards a theoretical and practical model of operational risk

Modified competitive, technological, social and political circumstances have magnified the potential impact of operations-related failures; yet OM's interest in operational 'risks' remains underdeveloped. This paper develops a provisional model of operational risk based upon the input and outcome dimensions of causal event and negative consequence. Discussion of risk control constitutes a complementary theoretical dimension. Empirical evidence from four operational failure case studies offers an opportunity to revise and extend the initial model. Specific conclusions address the structural and temporal pathology of operational failure and the subjective 'layers' of internal and external loss that appear to influence overall negative consequences. Additionally, effective risk control is highlighted as an integrated process with more similarities to service quality management than variation-reduction process control. The paper concludes with reflection upon the limitations of the study and, given the preliminary nature of the work, some suggestions for future work. (C) 2002 Elsevier Science B.V. All rights reserved.