Managing Operating Model Risk

A key ingredient of business risk is operating costs. These are all the costs that must be incurred in addition to COGS. If these costs are not kept in check, the company can go bankrupt. There are some key questions which must be addressed while managing operating model risk according to Mullins & Komisar (“Getting to Plan B” Harvard Business School Press, 2009).
§ What level of cost as a percentage of sales must be incurred in the different cost categories?
§ What costs can be reduced or eliminated completely?
§ What costs may have to be increased to make the business strategy more effective?
In many industries, there are various costs that can be eliminated simply by doing things differently. On the other hand, in a few industries, where the customers want the very best, costs may have to be increased to maximize customer delight. The use of technology to automate processes, minimize human error and reduce labour costs is a popular theme in operating model risk management.