Different Types of Risk. Operational Risk. Strategic Business Risk. Reputational Risk.

July 10th, 2009 | by kutenk |

What Is Operational Risk?


Operational risk is different from all other risks. It is typically defined by a variety of international sources, including government agencies, quasi-governmental bodies, professional organizations, and consulting firms, as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. There is no expected reward or return on investment, like one would expect from taking market or credit risk. The only “reward” from successfully managing or mitigating an operational risk is the reduction of a potential loss.

The key difference between operational risk and all other types of risks is expectation. We expect market risk when we purchase an investment. We expect credit risk when we loan money to someone else. We do not expect a process or system to not work. We expect things to work. We do not expect things to go wrong. Operational risk is the risk of loss from something’s unexpectedly going wrong. We do not want operational risk, although we are forced to live with it.




Operational risk = The risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events.

Operational risk includes legal risk, but excludes other risks that are not part of market or credit risk categories, such as strategic business risk and reputational risk. Strategic business risk is the risk of a loss from a poor strategic business decision, such as opening a store in the wrong location or producing a product no one would purchase. Reputational risk is the risk of a loss due to a change in a company’s reputation or standing in the market or community. Yet, a significant operational risk loss or failure would definitely adversely impact the reputation of a company. Therefore, strategic/business, credit, market, liquidity, and operational risk all affect a company’s reputation and by their nature create, increase, reduce, or alleviate reputational risk.

Operational risk is typically associated with the following types of potential loss:




?    People. Employees could intentionally or unintentionally make mistakes or fail to follow existing policies or procedures, resulting in losses.
?    Process. Deficiencies in an existing procedure, or the absence of a procedure could result in losses.
?    Systems. Automated processes and systems plus the underlying technology security or infrastructure could break down and cause losses.
?    External. Third-party actions and other artificial or natural forces could create losses for a company.

Search Here:


 

Did you like this? Share it:

Related posts:

  1. Managing Operational Risk in Financial Markets | by Amanat Hussain | ISBN: 9780750647328. Risk management framework. Business Process Reengineering. Enterprise-Wide Risk Management System. Operational Risk Management.
  2. Common Types of Operational Risk. Internal fraud.External fraud.Legal and liability losses.Noncompliance with regulations.System failures.Inappropriate business practice.
  3. Foundations of Banking Risk: An Overview of Banking, Banking Risks, and Risk-Based Banking Regulation | by GARP (Global Association of Risk Professionals) | ISBN: 9780470442197. Credit Risk Management. MARKET RISK MEASUREMENT AND MANAGEMENT. BASEL II AND OPERATIONAL RISK.
  4. Understanding Market, Credit, and Operational Risk: The Value at Risk Approach | by Linda Allen, Jacob Boudoukh and Anthony Saunders | ISBN: 9780631227090. Economics Finance Ebook. Credit Risk Measurement.
  5. Hedge Fund Operational Due Diligence: Understanding the Risks | by Jason A. Scharfman | 2009 | ISBN: 9780470372340. Smart Investing Books. INVESTORS Guide to Managing Investment Risks. Techniques for Modeling Operational Risk
  6. Enterprise Risk Management: Today’s Leading Research and Best Practices for Tomorrow’s Executives | by John Fraser and Betty J. Simkins | 2010 | ISBN: 9780470499085. ERM Tools and Techniques. Credit Risk Management. Operational Risk Management.
  7. Fundamentals of Enterprise Risk Management: How Top Companies Assess Risk, Manage Exposures, and Seize Opportunities | by John J. Hampton | 2009 | ISBN: 9780814414927. Governance Driver of ERM. Strategic Risk Management. Modern Risk Managers
  8. IT Strategic and Operational Controls | by John Kyriazoglou | 2010 | ISBN: 9781849280617. IT Organisation Controls. System Development Controls. IT Security Controls. Data Centre Operational and Support Controls. Systems Software Controls.
  9. Business Insights: China: Practical Advice on Operational Strategy and Risk Management, Second Edition | by Jonathan Reuvid | 2011 | ISBN: 9780749459918. Strategy Management Book. Regulatory and Legal Framework. Joint Ventures Negotiations. Key Sectors of Chinese Business Growth.
  10. Risk Accounting and Risk Management for Accountants | by Dimitris N. Chorafas | ISBN: 9780750684224. Market Risk. Credit Risk Mitigation. Interest Rate Risk. Foreign Exchange Risk. Position Risk.
  11. Risk Management in Finance: Six Sigma and Other Next Generation Techniques | by Anthony Tarantino and Deborah Cernauskas | 2009 | ISBN: 9780470413463. Total Quality Management Using Lean Six Sigma. Operational Risk Management Framework. OFF-BALANCE-SHEET RISKS. FINANCIAL LIABILITIES AND EQUITY RISKS.
  12. Cyber Risks for Business Professionals: A Management Guide | by Rupert Kendrick | 2010 | ISBN: 9781849280921. Technology Risks. Legal Compliance Risks. Operational Risks. Risk Management Strategies.
  13. Strategic Project Risk Appraisal and Management | by Elaine Harris | ISBN: 9780566088483. RISK MANAGEMENT STRATEGIES. PROJECT RISK MONITORING AND CONTROL. RISK MANAGEMENT STRATEGIES.
  14. Practical Enterprise Risk Management: A Business Process Approach | by Gregory H. Duckert | 2011 | ISBN: 9780470559857. Business Risk Management Book. DISTRIBUTED RISK ASSESSMENT AND MANAGEMENT (DRAM).
  15. How to Complete a Risk Assessment in 5 Days or Less | by Thomas R. Peltier | 2009 | ISBN: 9781420062755. Facilitated Risk Analysis and Assessment Process (FRAAP). Difference between Risk Analysis and Risk Assessment. Sample Risk Analysis Questionnaire. Business Impact Analysis.
  16. Credit Risk Management | by Andrew Fight | ISBN: 9780750659031. Failure and Risk Classification Systems. Framework for Credit Analysis. Problems with Financial Statements and Auditors. Fundamental Business Risks. Non-financial and Transactional Risks. Macro-economic Risk Areas. Micro-economic Risk Areas
  17. Management of Risk: Guidance for Practitioners | by The Office of Government Commerce (OGC) | 2010 | ISBN: 9780113312740. Business Risk Management Book. Risk Management Process Guide.
  18. Financial Risk Manager Handbook plus Test Bank: FRM Part I/Part II, Sixth Edition | by Philippe Jorion | 2011 | ISBN: 9780470904015. Financial Management Ebook. Market Risk Management. Credit Risk Management. Investment Risk Management
  19. Actionable Strategies Through Integrated Performance, Process, Project, and Risk Management | by Stephen S. Bonham | ISBN: 9781596931190. Strategic Management Ebook. Core Project Portfolio Management. Enterprise Risk Management Methodology.
  20. Operational Leadership | by Andrew Spanyi | 2010 | ISBN: 9781606491126. Comparison of Improvement Methods. How to Organize Operational Improvements. Tactics for Sustainability
  21. The Quintessence of Strategic Management: What You Really Need to Know to Survive in Business | by Philip Kotler, Roland Berger and Nils Bickhoff | 2010 | ISBN: 9783642145438. Business Process Reengineering. Strategic Brand Management. Business Growth Strategies
  22. Credit Risk Management In and Out of the Financial Crisis: New Approaches to Value at Risk and Other Paradigms, Third Edition | by Anthony Saunders and Linda Allen | 2010 | ISBN: 9780470478349. KAMAKURA’S RISK INFORMATION SERVICES (KRIS). Credit Risk Transfer Mechanisms
  23. Fixed Income Securities: Valuation, Risk, and Risk Management | by Pietro Veronesi | 2010 | ISBN: 9780470109106. Business Investing Ebook. Interest Rate Risk Management. Residential Mortgage Backed Securities. Monte Carlo Simulations
  24. The Failure of Risk Management: Why It’s Broken and How to Fix It | by Douglas W. Hubbard | 2009 | ISBN: 9780470387955. The Most Popular Risk Assessment Method and Why It Doesn’t Work. Major Risk Management Problems to Be Addressed. Risk Analysis and Risk Management versus Decision Analysis.
  25. Corporate Value of Enterprise Risk Management: The Next Step in Business Management | by Sim Segal | 2011 | ISBN: 9780470882542. Enterprise Risk Management Book. Components of Risk Governance.
  26. Risk Management in Credit Portfolios: Concentration Risk and Basel II | by Martin Hibbeln | 2010 | ISBN: 9783790826067. Financial Risk Management Books. Measures of Risk in Credit Portfolios.
  27. Business Risk Management Handbook: A Sustainable Approach | by Linda S. Spedding and Adam Rose | ISBN: 9780750681742. Drivers and Trends in Sustainable Enterprise Risk Management. Crisis Management Plan Best Practice. Case Studies of Business Risks.
  28. Breaking Through the Project Fog: How Smart Organizations Create, Select and Execute On-Strategy Projects | by James Norrie | ISBN: 9780470840719. ON- STRATEGY PROJECT MANAGEMENT. BUILDING A STRATEGIC PROJECT SCORING MODEL. INTERNAL PROJECT RISK ASSESSMENT. STRATEGIC PMO PROCESSES
  29. Applied Strategic Planning: An Introduction, Second Edition | by Timothy N. Nolan, Leonard D. Goodstein and Jeanette Goodstein | ISBN: 9780787988524. Strategic Business Modeling. Major Roles of Consultants. How to Launch the Strategic Planning Process. Criteria for Developing Contingency Plans.
  30. Risk Finance and Asset Pricing: Value, Measurements, and Markets | by Charles S. Tapiero | 2010 | ISBN: 9780470549469. Business Finance Ebook. Applied Finance. Derivative Finance. Structured Credit Risk Portfolios.
  31. Risk Management Technology in Financial Services: Risk Control, Stress Testing, Models, and IT Systems and Structures | by Dimitris N. Chorafas | ISBN: 9780750683043. Derivative Instruments for Credit Risk Transfer. Risk Control Methodology
  32. Creative Strategy: Reconnecting Business and Innovation | by Chris Bilton and Stephen Cummings | 2010 | ISBN: 9781405180184. . Business Strategy Ebooks. The Six Outcomes of Strategic Innovation. The Five Principles of Strategic Entrepreneurship
  33. The Strategic Leader: New Tactics for a Globalizing World | by John R. Pisapia | ISBN: 9781607521532. Business Leadership Ebook. How to DEVELOP THE COGNITIVE CAPACITY TO THINK STRATEGICALLY. The Strategic Thinking Questionnaire (Stq©). The Strategic Leadership Questionnaire (SLQ©)
  34. Performance Dashboards: Measuring, Monitoring, and Managing Your Business, Second Edition | by Wayne Eckerson | 2011 | ISBN: 9780470589830. Business Performance Management Books. Business Intelligence. 3 Types of Performance Dashboards. Characteristics of Effective Performance Metrics.
  35. Transforming Infoglut! A Pragmatic Strategy for Oracle Enterprise Content Management | by Andy MacMillan and Brian Huff | 2009 | ISBN: 9780071602365. Information Management Books. Strategic ECM Infrastructure and Middleware. Types of ECM Solutions
  36. Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project, Second Edition | by Tom Kendrick | 2009 | ISBN: 9780814413401. Project Risk Management. Program Risk Management. Portfolio Risk Management. Enterprise Risk Management.
  37. BUSINESS MODEL OF THE FIRM. Four types of business model change strategies. Nine basic business model building blocks.
  38. Strategic Operations Management, Second Edition | by Steve Brasen, Richard Lamming, John Bessant and Peter Jones | ISBN: 9780750663199. Operational Management Books. Operations Managers Resource Guide. Material Requirement Planning (MRP) Manufacturing.
  39. Risk Strategies: Dialling Up Optimum Firm Risk | by Les Coleman | ISBN: 9780566089381. Enterprise Risk Management. Insurance and Asset-liability Management. Bank Risk Management. Management of Corporate Crises
  40. Quantitative Risk Management: Concepts, Techniques, and Tools | by Alexander J. McNeil, Rudiger Frey and Paul Embrechts | ISBN: 9780691122557. Credit Risk Management. Dynamic Credit Risk Models. Insurance Analytics.

You must be logged in to post a comment.