What are the Types of Operational Risk-Types of Operational Risk

 What are the types of operational risk and how to manage them?

Each organization faces various uncertainties and challenges in its day-to-day operations that can affect its performance and outcomes. This uncertainty and challenges are known as operational hazards. Operational hazards are potential damage caused by failures or shortcomings in internal processes, people, systems or external events. They may have a negative impact on the organization's financial results, credibility and customer satisfaction.

 According to the Basel Committee on Banking Supervision, operational risks can be classified into seven categories, which provide guidelines and standards for the banking industry. 

These are the types:

Internal fraud:

Violation of dishonesty or trust by employees or insiders, such as misuse of assets, tax evasion ، Includes deliberate misrepresentation of financial transactions, etc.

External fraud:

This includes a violation of dishonesty or trust by a third party, such as theft, robbery, hacking, fishing, identity theft, etc.

Job practices and workplace safety: employment laws or regulations, discrimination, harassment, misalignment ، Including violations of occupational health and safety issues, etc.

Clients, products and business practices:

 including clients, products or services, such as incorrect sales, market manipulation, mistrust violations, fake violations ، Includes false or immoral behavior involving money laundering, etc.

Damage to physical assets: This includes damage or damage to physical assets due to natural disasters, accidents, vandalism, terrorism, etc.

Business Disruption and System Failure:

Power Outage, Hardware or Software Disorders, Network Issues ، Human errors, etc., include disruption or failure of the business process or system.

Execution, delivery and process management:

This includes failure or errors in the execution or delivery of products or services, such as data entry errors, incomplete documents ، Settlement failure, etc.

Operational hazards are necessary for any organization that wants to achieve its strategic goals and create value for its stakeholders. Operational risk management is the process of identifying, evaluating, measuring, monitoring and controlling operational risks.

This includes establishing a risk culture and governance framework that defines roles and responsibilities, policies and procedures, risk hunger and tolerance levels. This includes risk identification and evaluation tools such as risk registers, key risk indicators (KRIs), self-assessment and audits.

In addition, this includes internal control, business continuity plans and disaster recovery plans such as risk mitigation and development and testing of emergency plans.

 By adopting an active and systematic approach to operational risk management, organizations can increase their operational efficiency and effectiveness, reduce their operational losses ، can improve compliance with laws and regulations; increase the satisfaction and loyalty of their customers, and strengthen their credibility and brand value.