What type of risk is primarily associated with operational processes or systems?

Operational risk is primarily linked to the potential for loss resulting from inadequate or failed internal processes, systems, people, or external events. It encompasses risks arising from the execution of a company’s business functions. Issues such as system failures, process breakdowns, human errors, or external disruptions—like natural disasters or fraud—are prime examples of operational risk.

This type of risk is crucial for organizations to manage because it can have significant implications for their efficiency, reputation, and financial stability. Proper management of operational risk involves implementing robust systems and processes, conducting regular training, and integrating risk awareness throughout the organization. Unlike strategic, financial, or compliance risks, which have distinct focuses, operational risk is directly tied to the day-to-day functioning of the organization, making it vital to overall performance and resilience.