Operational risk is defined as “the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events” — a definition commonly accepted and propounded by the Basel Committee on Banking Supervision (BCBS).
Operational risk management refers to the entire range of activities — from risk identification, measurement, assessment, monitoring, and control/mitigation, to reporting, business continuity management, and continuous learning through feedback and technology.
Expanding the Definition
Operational risk primarily involves processes. Inadequate processes or control deficiencies can lead to operational risk events related to people, systems, and external factors. Human error remains one of the major sources of risk events, even in today’s technology-driven world.
Technology is now all-pervasive in our lives, industries, and businesses. Simply put, without technology, there is no business.
The Nature of Operational Risk
Risk-taking in business is typically associated with the risk–reward relationship — the higher the reward, the greater the risk. However, for operational risk, there is no such risk–reward relationship.
There is no reward for taking on more operational risk; rather, exposure to risk events only increases. This principle has held true in the past and continues to apply today — whether the business is technology- or AI-driven, the logic remains unchanged.
In today’s dynamic environment, every organization relies on people, processes, and systems. Therefore, operational risk exists at all times and at all levels — from small businesses to large global institutions, even down to individuals.
Technology & Emerging Risks
With technology adoption comes new operational risks: downtime, network failures, virus threats, hacking attempts, cyberattacks, and cloud vulnerabilities.
With the rise of AI, newer risks are emerging — from simple prompt errors to deeper algorithmic faults. The full spectrum of AI-related risks will continue to evolve, requiring organizations to prepare proactively.
In Conclusion
The only constant in life is change. To achieve long-term business goals, organizations must continuously adapt and strengthen their operational risk management framework.
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