6. Operational Risk Management

Question 1

What is operational risk?

Answer 1

The potential of loss due to failures of people, processes and technologies.

Question 2

Name five types of operational risk:

Answer 2

1. Crime risk
2. Disaster risk
3. Legal risk
4. Regulatory risk
5. Technology risk

Question 3

Name three benefits of operational risk management?

Answer 3

1. Help achieve business objectives.
2. Minimize day to day losses.
3. Helps management to focus on revenue generation.

Question 4

What are the three factors that influence operational risk management?

Answer 4

1. Strategy
2. People
3. Processes & Systems

Question 5

According to Chapman (2011), adopting the wrong (1)…, failing to (2)… a well-thought-out strategy and not (3)… a successful strategy over time, are examples of operational risk.

Answer 5

(1) business strategy
(2) execute
(3) modifying

Question 6

… continue to be the major contributing
factor in many dramatic failures and, despite the difficulties of measuring this kind of risk,
it needs to be targeted in any programme aimed at improving risk management.

Answer 6

People risk

Question 7

Name four examples of people risk?

Answer 7

1. Absenteeism rates
2. Labour turnover
3. Accident rates
4. Productivity

Question 8

Name three consequences of poor process & systems management?

Answer 8

1. Inability to meet orders
2. Poor quality control
3. Fraud and information security failure

Question 9

What strategy can companies use to reduce operational costs and become more competitive?

Answer 9

Outsourcing

Question 10

Why is measurement of risks so important in businesses?

Answer 10

Need to determine which factors poses the greatest risk.

Question 11

What does the mitigation of risk depend on?

Answer 11

1. How embedded risk management are in the business.
2. Robustness of the risk identification process.
3. Experience of senior management in risk exposure.