Operational Risk

Operational risk is the possibility of loss due to internal or external factors that disrupt an organization's operations. These factors can include:?

Internal factors: Inadequate or failed internal processes, people, or systems?

External factors: Events that disrupt business operations, such as natural disasters, cybercrime, or supply chain disruptions?

Human error: Mistakes such as data entry errors or missed deadlines.

?Operational risk can be complex and interconnected, and can lead to financial losses. For example, a bank that doesn't have a robust system for verifying borrower information may approve loans to people with poor credit histories, which can lead to financial losses.?

To mitigate operational risk, organizations can: Establish comprehensive controls, Conduct regular audits, and Foster a culture of risk awareness among employees.?

Operational risk is the?risk of losses caused by flawed or failed processes, policies, systems or events that disrupt business operations. Employee errors, criminal activity such as fraud and physical events are among the factors that can trigger operational risk.

Most organizations accept that their people and processes will inherently incur errors and contribute to ineffective operations. In evaluating operational risk, practical remedial steps should be emphasized to eliminate exposures and ensure successful responses.

If left unaddressed, the incurrence of operational risk can cause monetary loss, competitive disadvantage, employee- or customer-related problems and business failure.