Reducing IT Operational Risk
Today, information technology has become a fundamental necessity and is inseparable from our daily lives. IT has brought significant convenience and efficiency to everyday activities, both at home and in the workplace. Without realizing it, we have become highly dependent on information technology.
Behind the comfort and convenience offered by IT, there is also a significant potential risk. The greater our dependence on information technology, the greater the risks we must bear. This is further compounded by the reality that IT infrastructure can fail—something that is natural and occurs frequently. Risks arising from information technology are classified as operational risks.
About Operational Risk
Operational risk can be categorized as an inherent risk, meaning a risk that is embedded and cannot be completely eliminated. Once we use information technology, we are automatically exposed to operational risks such as IT infrastructure failures caused by damaged mainboards, memory issues, and other hardware or system failures.
Operational risk is also very difficult to quantify in terms of impact and is challenging to manage. Managing operational risk requires advanced tools and a deep understanding of the risks involved.
The complexity of managing operational risk lies in its broad scope. All risks that do not fall under credit risk or market risk are generally classified as operational risk. Even within credit risk and market risk, operational risk may still exist.
For example, if a user of a credit application or loan origination system cannot input required data—either due to infrastructure issues or human error—resulting in inaccurate borrower scoring, this leads to credit risk. However, the root cause of that credit risk is operational risk.
Impact of Operational Risk
Operational risk can have a direct impact on a company’s financial performance. For instance, if an e-commerce application is unable to serve customers for any reason, it will immediately reduce the company’s revenue. The longer the application is unavailable, the greater the loss in revenue.
Operational risk can also affect a company’s reputation, which ultimately impacts financial performance. In some cases, reputational damage can be even more severe due to declining customer trust. For example, if a bank customer is unable to withdraw funds because of frequent IT infrastructure failures, the customer may choose to move their funds to another bank.
Sources of Operational Risk
In general, operational risk is closely related to human factors and systems/IT infrastructure. Some common causes include:
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Human error
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IT systems that are difficult to operate
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Use of unstable technology
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Inadequate IT architecture
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Insecure IT infrastructure
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Low hard disk performance
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Insufficient bandwidth
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And others
Operational Risk Mitigation
Building a Disaster Recovery Center (DRC) is a common approach to anticipating system failures. However, a DRC can be likened to a spare tire—if the main tire frequently fails, constantly replacing it is not a sustainable solution.
Building a primary data center that is resilient to operational risks is highly recommended. However, such a data center requires substantial investment.
The key question is how to have a data center capable of handling operational risks at a cost aligned with a company’s financial capacity and business scale. The answer lies in using cloud services, which automatically transfer or shift IT operational risks from the company to the cloud service provider.
Tips for Choosing a Cloud Service Provider
Selecting a cloud service provider should not be based solely on pricing. The primary consideration should be the provider’s ability to mitigate or reduce the negative impact of IT operational risks. Important factors include:
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Skilled and experienced human resources to minimize human error
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Easy-to-operate data center management tools
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Proven and reliable cloud technology from industry pioneers
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Implementation of N+1 architecture
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Comprehensive security infrastructure, including routers, anti-DDoS, and both physical and virtual firewalls
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High-availability platforms enabling automatic workload transfer
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High disk performance
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Large bandwidth capacity
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Clear separation between the data center and the network operations center (NOC)
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And others
Benefits
In addition to reducing or transferring operational risk, using cloud services offers several other benefits:
1. Increased Return on Investment (ROI) / Return on Assets (ROA)
Using cloud services does not increase company assets, while the benefits of IT remain the same or even improve. With fewer assets, maintaining the same profit level results in higher ROI/ROA ratios.
2. Cloud Capacity Scaled to Business Needs
Cloud specifications can be adjusted at any time. Resources such as vCPU, vRAM, and storage size can be increased or decreased without downtime.
3. Fast Implementation Time
Virtual servers can be provisioned within minutes, enabling rapid implementation.
4. Bandwidth Efficiency
Especially for internet-facing applications, companies no longer need to provide bandwidth from their own data center to the internet. Choosing a cloud provider that offers large bandwidth with free, unlimited, and unmetered traffic is a smart decision.
Written by: Makpui – Sales Manager
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