Operational risk is commonly regarded as the “catch-all” or residual of risks not defined as market or credit risk. It is currently attracting increased attention from academics, practitioners as well as regulators.
The Basel II definition as “the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events” has narrowed the focus of much of the debate around operational risk, at least for the moment. Specific challenges – especially the lack of relevant data – await those intending to measure operational risk. Recent approaches have focused on combining quantitative risk assessment results and key qualitative indicators, to help management understand the level of operational risk and to use this knowledge in the capital allocation process.
The management of operational risk, while challenging, will be increasingly critical to business in the future, as companies extend their product offerings and other risk management capabilities. Organisations that move pragmatically toward a total risk management framework, encompassing market, interest rate, credit, and operational risks, will be better positioned to price risk and find new and profitable businesses.
Riskworx provides assistance in methodology and system selection and implementation, sourcing of external data, and embedding the event capturing and operational risk measurement process within the organisation.