Risk Management Financial
Derivatives
Operational
Risk
Introduction
Operational risk is the potential for loss resulting from inadequate or failed
internal processes, people, and systems. It is one of the key types of risk that
businesses and organizations face, alongside strategic risk, credit risk and
market risk. Operational risk management (ORM) involves identifying, assessing
and mitigating these risks to reduce the likelihood and impact of potential
losses.
Scope of Operational Risk
Internal Processes People
Includes weaknesses in Encompasses risks
design, execution, and associated with human
monitoring of internal error, misconduct, and
processes. inadequate skills or
training.
Systems External Events
External events like
Covers potential risks natural disasters,
related to technology economic downturns,
failures, data breaches, and political instability
and system malfunctions. can also contribute to
operational risk.
Regulatory Non-Compliance Fraud
Types of Deliberate misrepresentation or Malfunctions, cyberattacks, and
manipulation of information for data breaches that disrupt
Operational personal gain. business operations.
Risks
Technology Failures Human Errors
Failure to adhere to relevant Mistakes, negligence, and
laws, regulations, and industry oversight that lead to
standards. operational failures.
Regulatory and Compliance Considerations
Financial Regulations Data Protection Regulations Industry-Specific Regulations
Regulations governing financial Regulations like GDPR and CCPA that Specific regulations governing various
institutions, including anti-money protect individuals' personal data industries, such as healthcare, energy,
laundering (AML) and Know Your
and transportation.
Customer (KYC) requirements.
Risk Identification
01 Identifying potential risks and their sources.
Operational Risk Risk Assessment
02 Assessing the likelihood and impact of identified
Management
risks.
Framework Risk Mitigation
03 Developing and implementing strategies to reduce
the likelihood or impact of risks.
Risk Monitoring
04 Continuously monitoring risks and evaluating the
effectiveness of mitigation measures.
Identifying and Assessing Operational Risks
Data Analysis Risk Assessments Expert Opinions
Examining historical data Formal evaluations of Seeking input from subject
to identify patterns and specific risks, including matter experts to identify
trends that suggest their likelihood and impact. and assess risks.
potential risks.
Mitigating and Controlling Operational Risks
Risk Avoidance Eliminating activities or processes that pose high risks.
Risk Reduction Implementing measures to reduce the likelihood or impact of risks.
Risk Transfer Shifting risk to another party through insurance or outsourcing.
Risk Accepting the risk and making provisions for potential losses.
Acceptance
Conclusion
Effective operational risk management is essential for any
organization's success. By identifying, assessing, mitigating, and
monitoring operational risks, businesses can protect their assets,
reputation, and financial stability.
Aaron Loeb
CEO & Founder
THANK YOU!
