What is operational risk and what are the main sources?

What is operational risk and what are the main sources?

• A. Risk arising from customers’ preferences; sources include market shocks.
• B. Risk arising from regulatory changes; sources include fines.
• C. Risk arising from people, processes, systems, or external events; sources include human error, faulty processes, system failures, and external disruptions.
• D. Risk arising from product design; sources include R&D missteps.

Answer: (C)

Operational risk is the risk of loss that comes from how an organization operates: people, processes, and systems, plus external events that disrupt those operations. The main sources are human error (mistakes or fraudulent actions by staff), faulty or inadequate processes (weak controls or flawed procedures), system failures or outages (IT or infrastructure problems), and external disruptions (events outside the organization’s control such as disasters, supply-chain interruptions, or major external shocks). This framing fits because it focuses on what can go wrong inside the organization’s operations rather than on market movements, customer preferences, or design decisions. The other descriptions describe market/demand risk, regulatory risk, or product/innovation risk, which are different risk categories.

Operational risk is the risk of loss that comes from how an organization operates: people, processes, and systems, plus external events that disrupt those operations. The main sources are human error (mistakes or fraudulent actions by staff), faulty or inadequate processes (weak controls or flawed procedures), system failures or outages (IT or infrastructure problems), and external disruptions (events outside the organization’s control such as disasters, supply-chain interruptions, or major external shocks). This framing fits because it focuses on what can go wrong inside the organization’s operations rather than on market movements, customer preferences, or design decisions. The other descriptions describe market/demand risk, regulatory risk, or product/innovation risk, which are different risk categories.