What are operational risks?
Banks and other financial institutions face losses from a failure to manage internal processes and systems. Operational risk arises from disruptions to daily operations that contribute to direct or indirect losses. Managing and understanding key operational risk has grown exponentially over the past few decades. This has generated a need to implement tools and industry techniques to provide a sound operational risk management solution. This is essential for institutions hoping to attain their goals and business objectives quickly and successfully.
What causes operational risks?
Operational risk management has become even more prominent over the past few years. Financial institutions, using the latest financial software technology, have grown tremendously in size, and are engaged in developing multi-structured and multi-layered products and services. This has made the overall operations within these institutions very complex and difficult to handle. This environment has led to a significant increase in several kinds of risk. There are both internal and external contributing factors.
- Internal Factors
Inadequate processes, failure of existing systems, inefficient hardware and server maintenance contribute to banking operations being adversely affected. The onset of manual errors and erroneous communication also occurs as a result of a huge workforce.
- External Factors
External factors such as natural disasters, political upheavals, weak financial policies of the state, and criminal fraud have only compounded operational risks.
What is required to counter operational risks?
The implementation of a robust automated solution and the development of a well-defined operational risk management policy that can identify, monitor, assess and eliminate, if not reduce, all potential risks. Strong internal controls, incident and event tracking, risk profiling, use of automated e-mail alerts, and notifications are some of the key features of a sound operational risk management solution.
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