Question

 Give brief answers for the following questions: 

I. Define ‘operational risk management’.

II. What is strategic risk?

III. What is people’s risk?

IV. What are the key areas of risk associated with business objectives?

V. Explain the factors on which the operational risk management depends.

VI. What does operational risk covers according to FSA?

VII. Outline the benefits of operational risk management.

Answer 1

OPERATIONAL RISK MANAGEMENT - Operation risk management is defined as a cyclic process which includes risk management, risk decision making, implementation of the risk control process, which result in acceptance and avoidance of risk. it happens when the management is not being alerted regarding the risk of loss which generally incurred because of the internal and external events. The internal events include the incompetence of the system itself and external events like a change in government policy regarding the economy, technology etc.

BENEFITS OF OPERATIONAL RISK MANAGEMENT

(1) It helps to improve the reliability of the business operations.

(2) It helps in early identification of unlawful activities prevailing in the organization.

(3) It provides strength in the decision making process with regards to risk management.

(4) Lower compliance cost

CHALLENGES OF OPERATIONAL RISK MANAGEMENT

(1) Lack of systematic measurement method of operational risk

(2) The rising cost of compliance

(3) Lack of authority to access the appropriate information and database