Integrating behavioral science into operational risk management: A new paradigm for the FMCG sector

Abstract

This paper explores the rationale for integrating behavioral science into ORM within the FMCG sector, examines key behavioral principles relevant to risk management, and proposes practical frameworks for implementation. By adopting this new paradigm, FMCG companies can enhance their resilience, adaptability, and overall performance in an increasingly complex and dynamic business environment. Operational risk management (ORM) is paramount for ensuring the stability and success of businesses, particularly in fast-moving consumer goods (FMCG) sectors where operational disruptions can lead to significant repercussions. However, traditional ORM approaches often overlook the human element, focusing solely on systems, processes, and external factors. This paper advocates for the integration of behavioral science into ORM, recognizing the pivotal role of human behavior in shaping operational risks and offering strategies to effectively mitigate these risks. The rationale for integrating behavioral science into ORM within the FMCG sector is explored, emphasizing the need to understand and influence human behavior to enhance resilience and adaptability. Key behavioral principles relevant to risk management are examined, including decision-making biases, social dynamics, and cognitive heuristics. These insights provide a foundation for developing practical frameworks for implementation, encompassing areas such as demand forecasting, compliance, and employee engagement. By adopting this new paradigm, FMCG companies can enhance their resilience, adaptability, and overall performance in an increasingly complex and dynamic business environment. Integrating behavioral science into ORM enables companies to anticipate and address human factors that contribute to operational risks, leading to more effective risk management strategies and improved business outcomes .In conclusion, the integration of behavioral science into ORM represents a paradigm shift that recognizes the importance of understanding and influencing human behavior in mitigating operational risks. By incorporating behavioral insights into their risk management practices, FMCG companies can better navigate challenges, capitalize on opportunities, and ultimately, achieve sustained success in today's competitive marketplace.