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 ?
In the particular context of the emerging market economy of the United Arab Emirates (UAE), there are only researches about general risk disclosure in annual reports and not specifically about operational risk, such as Hassan (2009) and Hassan (2014).
The objectives of the DSS survey were to benchmark and measure the maturity of Operational Risk Management (ORM) in organizations across industries and to examine the challenges organizations face in managing risk.
For this highly tailored coverage, XL Catlin offers a capacity of 100 300 million euros per operational risk event and can cover multiple risks per client.
Operational Risk is considered the leading journal for operational risk professionals in financial services institutions worldwide.
Keywords: Operational Risk Management, Advance Measurement Approach, Basel II, Internal and External Fraud, Scenario Analysis
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.
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.
Though financial institutions have always been exposed to operational risk events since failure in people, processes, systems and external events are an inherent part of conducting financial services.
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.
Dickstein and Flast affirm that designing and managing business processes is a critical factor to develop and implement successful operational risk management.
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