Operational risk can also be classified by event. This type of classification is often used to identify the root cause of an operational risk event and to develop appropriate mitigation strategies.
Some common operational risk events by event are:
- Human error: This type of event is caused by mistakes made by employees, such as data entry errors, mishandling of customer information, or inadequate risk management.
- System failure: This type of event is caused by problems with an organization’s IT systems, such as hardware failures, software glitches, or cyberattacks.
- Natural disaster: This type of event is caused by natural phenomena, such as hurricanes, floods, earthquakes, or wildfires.
- Terrorism: This type of event is caused by intentional acts of violence against an organization or its people.
- Third-party risk: This type of event is caused by problems with an organization’s third-party vendors or suppliers, such as data breaches, supply chain disruptions, or product recalls.
The specific events that are considered operational risk events will vary depending on the organization and its industry. However, the goal of any event-based classification system is to identify the root cause of operational risk events and to develop appropriate mitigation strategies.
Operational Risk MCQs
- Which of the following is NOT an example of an operational risk event?
- A data breach
- A system outage
- A natural disaster
- A change in interest rates
- The correct answer is a change in interest rates. Interest rate risk is a type of financial risk, not operational risk.
- Which of the following is the most common cause of operational risk events?
- Human error
- System failure
- Natural disaster
- Terrorism
- The correct answer is human error. Human error is the most common cause of operational risk events because it is the most difficult to prevent.
- Which of the following is the most effective way to mitigate operational risk events caused by human error?
- Conducting regular training for employees
- Implementing appropriate controls
- Monitoring employee performance
- All of the above
- The correct answer is all of the above. Operational risk events caused by human error can be effectively mitigated by conducting regular training for employees, implementing appropriate controls, and monitoring employee performance.
Conclusion
Operational risk classification by event is an important tool for understanding and managing operational risk. By classifying operational risk events by event, organizations can identify the root cause of the events and develop appropriate mitigation strategies.