Credit risk, on the other hand, is the risk of loss due to debtors' non-payment of a loan or other line of credit. Operational risk, as defined by the Basel Committee, is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.
Operational and credit risk defines the survival and the competitive nature of the activities in the financial sector most importantly their profitability. This AbstractIntroductionLiterature reviewEmpirical methodology
Causes of Operational Risk
Operational risk is usually caused by four different avenues: people, processes, systems, or external events.
For many aspects of operational risk, companies must simply try to mitigate the risk within each category as best as possible with the understanding that some operational risk will likely always be present.
,
Does operational and credit risk affect the profitability of universal banks?
Operational and credit risk defines the survival and the competitive nature of the activities in the financial sector most importantly their profitability.
This study examines the influence of credit and operational risk on the profitability of universal banks in Ghana.
,
Examples of Operational Risk
One area that may involve operational risk is the maintenance of necessary systems and equipment.
If two maintenance activities are required, but it is determined that only one can be afforded at the time, making the choice to perform one over the other alters the operational risk depending on which system is left in disrepair.
If a system fails, t.
,
How to Assess Operational Risk
There are two primary parts of assessing operational risk: key risk indicators (KRIs) and data.
KRIs are metricsa company may self-assign as the benchmarks for risk.
For example, a company may target that it only wants to work with the most creditworthy vendors.
Therefore, it sets the KRI that there may be no more than three vendors that default on.
,
How to Manage Operational Risk
There's several overarching strategies and overarching principles when it comes to managing operational risk.
Though every company can choose to approach operational risk, here are four primary ways companies manage risk.
,
Operational Risk vs. Other Types of Risk
Operational Risk vs.
Financial Risk
,
The 7 Categories of Operational Risk
The four causes above can be expanded and broken into 7 main categories of operational risk.
These 7 primary categories include (in no particular order):.
1) Internal fraud:employees conspiring and often colluding to overtake internal controls and misappropriate company resources.
2) External fraud: independent parties outside of the company attempt.
,
Understanding Operational Risk
Operational risk focuses on how things are accomplished within an organization and not necessarily what is produced or inherent within an industry.
These risks are often associated with active decisions relating to how the organization functions and what it prioritizes.
While the risks are not guaranteed to result in failure, lower production, or h.
,
What Is Operational Risk?
Operational risk summarizes the uncertainties and hazards a company faces when it attempts to do its day-to-day business activities within a given field or industry.
A type of business risk, it can result from breakdowns in internal procedures, people and systems—as opposed to problems incurred from external forces, such as political or economic ev.
