Operational Risks in MSMEs: Problems That Can Be Solved Early
When MSME owners think about business risks, they usually focus on sales, profits, or funding. However, many businesses face serious losses not because of poor sales—but due to operational failures.
Operational risk is often invisible until something goes wrong. Operational risk refers to the risk of loss or business disruption arising from failures in internal processes, people, systems, or external operational events.
For MSMEs, operational risks are common—but the good news is that most of them are preventable if identified early.
Quickly assess your business operations, whether they are risk-ready or risk-exposed.
1. Dependency Risk
- Is your business dependent on one key employee for critical work?
- Is production dependent on one machine or system?
- Do you rely on only one major supplier?
Action:
- Create backups (people, machines, suppliers)
- Cross-train employees for critical roles
2. Process & Control Risk
- Are key processes i.e. billing, purchasing, production documented?
- Are invoices and entries done manually without checks?
- Is there any approval system for expenses or purchases?
Action:
- Document simple SOPs
- Introduce basic approval and review controls
3. People Risk
- Would work stop if a key employee resigns or is absent?
- Are the employees trained sufficiently?
- Is there any role clarity?
Action:
- Maintain role clarity
- Train backups for key functions
4. Supply Chain Risk
- Is raw material procurement dependent on one vendor?
- Are deliveries frequently delayed?
- Is there minimum stock planning?
Action:
- Identify alternate vendors
- Maintain buffer stock for critical items
5. Technology & Data Risk
- Is accounting data backed up regularly?
- Are systems accessed without controls?
- Is there protection against cyber risks?
Action:
- Use reliable accounting software
- Schedule regular data backups
- Restrict system access
6. Infrastructure & Asset Risk
- Is machinery maintenance reactive instead of preventive?
- Are stock and assets insured/insured adequately?
- Are power or infrastructure disruptions frequent?
Action:
-Schedule preventive maintenance
-Review insurance coverage annually
Final Thought
Operational risks do not require complex frameworks—they require awareness, planning, and discipline.
Small preventive steps taken today can save MSMEs from major operational and financial disruptions tomorrow.
CA Ami Desai, Partner
