Operational Risks

Risk Management

Operational risks ⇒ are the risks related to the enterprise’s ongoing (everyday) operations.

Operational risks result from inadequate or failed internal processes, people or systems. These failures can relate to:

  • Human resources (e.g., inadequate hiring or training practices)
  • Business processes (poor internal controls)
  • Product failure (customer ill will, lawsuits)
  • Occupational safety and health incidents
  • Environmental damage
  • Business continuity (power outages, natural disasters)

Operational risks concerns items that are more directly under the influence of management, the company is in a better position to mitigate these risks through their own actions (controls).

Operational risk also includes legal risk and compliance risk:  

Legal risk

 Legal risk is the risk that is associated with uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations where the company operates.

Legal risk includes the legal system in which the company operates and the risks of losses from legal cases.

Compliance risk

Compliance risk is the current or future risk to profits or the company’s assets as a result of violations of, or nonconformance with, laws, rules, regulations, required practices, internal policies and procedures, or ethical standards.

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