Examples of operational risk: what are they and how to manage them?
Operational risk is a risk of loss due to failed internal
processes or external events in a business. This is the behavior and error of
employees, private data violations, technology hazards, business processes, and
controls, and physical events ، may be due to internal and external fraud and other
factors. It can affect the reputation, relationship and shared value of the organization.
.png "Operational Risk Examples-Operational Risk")
Operational risk can be classified into internal and
external hazards, and can be identified, assessed and accepted by the internal
control system. In this blog post, we will see some examples of operational
risk and how to manage them effectively.
Internal hazards
Internal hazards are those that arise from within the
organization, such as:
Business Disruption and System Failure:
This means any disruption to business continuity and
performance due to technical issues or human errors. For example, a sorting
error that hinders the completion of the configuration, or a system accident in
a business that relies heavily on automation.
Client, products, and business
practices:
This refers to any legal or regulatory risks associated with
the products or services offered by the business ، Or the way they are marketed
or supplied. For example, a company, which is deliberately or unintentionally,
or involved in competitive methods through pricing or illegal integration 1 ،
Sells a bad new product.
Job procedures and workplace safety:
This refers to any risk related to the health and well-being
of employees, as well as compliance with labor laws and ethical standards. For
example, violations of standards in workplace safety, illegal outsourcing of
secure jobs, or violation of regulatory rules.
Implementation, delivery and process
management:
This refers to any risk related to business operations and
quality and performance. For example, difficulty meeting an error, accounting error,
or customer expectations in the data entry process.
Internal fraud:
This refers to any dishonest or illegal actions by employees
or managers that result in loss of financial or credibility to business. For
example, an employee steals the company's assets or commits internal trade.
External Hazards
External hazards are those that arise from outside the
organization, such as:
External fraud:
This refers to any dishonesty or illegal action of a third
party that results in loss of financial or credibility to the business. For
example, a client is cheating on a financial services company or hacker who
steals valuable information by exploiting Luck Cybersecurity.
Physical events:
This refers to any natural or man-made disasters that damage
business assets or disrupt business operations. For example, a storm destroyed
warehouse or fire break in office building.
How to manage operational risk
Operational risk is inevitable in any business activity, but
can be effectively managed by following some best practices:
The first step is to identify sources and types of
operational risk that affect business. This can be done by regular risk assessment
and audit, using tools such as key risk indicators (KRIs), risk register, and
risk map.
Evaluate operational risk:
The next step is to assess the prospects and effects of each
operational risk on business objectives and performance. This can be done using
tools such as probability matrix, impact scales, and risk score.
Accept operational risk:
The final step is to decide how to deal with each
operational risk based on its assessment. This can be done using one in four
strategies: (Reduce risk), reduce (, transfer ) Risk <TAG1> Share ، Or
maintain ( Accept risk ) .
To conclude
Operational risk is a common challenge for any business that
involves human interaction and decision-making. By understanding its sources
and types and applying effective management techniques ، Businesses can reduce
their exposure to operational risk and increase their performance and
flexibility.
