Operating risk

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 ?
The service is managed by the concessionaire at its own risk (transfer of operating risk), in accordance with the rules of the art, in compliance with the regulations, in order to ensure the conservation of heritage and the continuity of the service under the conditions fixed in the draft contract (delivered with the dce), the rights and the safety of users and third parties.
bankruptcy code and therefore bondholders are legally insulated from any operating risk of the district.
A report from the bank said, 'This is a significant and complex change programme which is taking longer than anticipated and will involve a higher level of investment and operating risk over the next two to three years, both of which are being actively managed.'
Lebanon's petroleum activities regulation -- a collection of application decrees filling out the offshore petroleum resources law -- says that oil and gas exploration companies will be free to self insure their operating risk through a wholly owned unit.
The operating risk management methodology applied by Areximbank-Gazprombank Group is the same as the one
BERI predicted that Taiwan's corporate operating risk will remain low, with its ranking reaching 1st place in 2013 and 2nd place in 2017, trailing Singapore.
The assumption of an operating risk, even limited, is enough to classify a contract as a service concession, ruled the EU Court of Justice, on 10 March.
He will also serve as chief risk officer and the risk management function, including credit, enterprise and operating risk as well as compliance.
"Our hospitals are well positioned in each of their respective markets, and are geographically diversified, which minimizes our operating risk as no one state represents a disproportionately greater percentage of our total revenues or earnings," said CHS President and CEO Wayne Smith.
IT enterprises are continuing to take a "siloed" approach to risk assessment and management by operating risk management departments independently using different definitions of risk, recording information inconsistently, and sharing information beyond the boundaries of their specific business or support area.
markets, solid free cash flow generating ability, and fiscal policies consistent with a BBB- rating given the company's operating risk profile," Fitch said.
Humphrey says that farmland's low management cost and low operating risk makes it a better investment for them than, say, student housing, where maintenance, rent collection, and liability factors cut into returns.
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