Operational Risk is the risk of loss caused by inadequate, failed internal processes, personnel and systems or external events. In today’s ever-changing environment, operational risk is becoming increasingly complex and often difficult to manage, as companies must continuously adjust to unpredictable events, customer requirements, and unexpected markets disturbances.

Operational risks arise due to various internal and external factors. Internally, operational risk usually results from inadequate risk management, faulty operating procedures, inadequate systems or processes, incomplete or inaccurate data, or a lack of control systems. Externally, operational risk can be caused by natural disasters, such as earthquakes, floods, or hurricanes, or by third-party events, such as litigation, contractual disputes, cyberattacks, or reputational damage.

Operational risk can have direct and indirect financial consequences. Indirect consequences include customer dissatisfaction, reduced market capitalization, and brand failure, while direct impacts may result from fines and penalties, customer refunds, or catastrophic loss of assets.

To successfully manage operational risk, organizations should develop comprehensive risk management programs and strategies. This requires proactive identification and evaluation of risks and the implementation of preventive measures. Companies should also develop a proper framework to identify and measure operational risk, thereby allowing them to better use resources and make more informed decisions. Additionally, organizations must create a culture of risk awareness, using the right processes and technology to identify, measure, and address operational risks appropriately.

Ultimately, to minimize operational risk, organizations should ensure that they have the right processes and technology in place, as well as an appropriate risk management structure. By doing so, they can identify and respond to operational risks more quickly and effectively, thus ensuring the survival of their business.