Operating risk

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Operating risk

The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk.

Operating Risk

Risk from sources other than inadequate funding (credit risk) or a change in market factors (market risk). Basel II defines operating risk as the "risk of loss resulting from inadequate or failed internal processes, people and systems or from external events." Thus, operating risk may come from mundane sources such as incompetent personnel or miscommunication between a buyer and a seller, or it may stem from events beyond a firm's control, such as terrorism, damage to goods in transport, or even a sudden drop in demand. Because it is not (primarily) financial, it is the most difficult type of risk to quantify. Sometimes, operating risks are predictable; for example, a farmer can prepare for a drought that would harm his/her harvest and therefore profits. On the other hand, risk from an employee's fraud is often impossible to anticipate. Consultancies often offer operating risk management, identifying and attempting to eliminate it as much as possible. See also: Political risk, Reputational risk.
References in periodicals archive ?
McKinney also noted that with regulatory scrutiny increasing, the operational risk agenda has gained prominence and expanded greatly.
QIB chief risk officer Rakesh Sanghvi said branch employees are the first line of defence in QIB against operational risk.
According to the report, the critical capabilities of ORM software applications center on providing business leaders with a more effective means of assessing risk and control effectiveness, identifying operational risk events, managing remediation efforts, and quantifying the associated operational risk exposure across the enterprise.
Several studies dealing with operational risk also assess the dependencies between the risk cells of banks, including, for example, Bocker and Kluppelberg (2008), Ebnother et al.
Traditionally, frontline operational risk is managed in silos with Process Safety Management focused personnel or engineering functions managing asset integrity risk and operations managing the risk associated with the intervention work occurring on the plant.
There are no straight answers but it is important to face the reality that managing Operational Risk is not as straightforward as anybody would like to believe.
Thus the best way for Islamic banks to combat operational risks is to develop operational risk management strategies and practises, which will be discussed in great detail by Mr.
Within a marking-to-model framework, the research realized by Chateau (Chateau, 2009) computes the bank's capital charge for credit and operational risk of loan commitments at Basel-2 fixed audit date.
In a statement, the central bank said, 'This incident has revealed weaknesses in DBS Bank's technology and operational risk management control.
A significant potential source of operational risk results from the use of third parties--brokers, for example.
The AMA option is designed to be more sensitive to operational risk and is intended for internationally active banks having significant exposure to operational risk.
Many initiatives do not get off the ground because too much time is spent trying to come up with the perfect definition for operational risk.
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