Operational risk refers to the risk of loss resulting from inadequate or failed processes or systems, from personnel and systems or from external events. This definition includes legal risk but excludes risks resulting from strategic decisions.
Operational risks may realize as a consequence of:
- internal misconduct;
- external misconduct;
- insufficient human resources management;
- insufficiencies in operating policies as far as customers, products or business activities are concerned;
- damage to physical property;
- interruption of activities and system failures; and
- defects in the operating process.
Operational risk may materialize as additional expenses, compensations for caused damages, loss of reputation, false information on risk position and consecutive losses, and interruption of business activities.