The concept of ‘risk’ is multi-faceted. Although banking institutions have traditionally used a definition of risk as setbacks in the financial markets, a holistic view of risk cannot be grounded only in statistics about the world outside the institution itself. A full understanding of risk must also include internal factors specific to the bank. These are collectively referred to as ‘operational risk’.
What is operational risk?
Broadly speaking, operational risk refers to the chance that a financial institution will suffer monetary losses that are not linked to the financial markets. Operational risk may occur because of flawed internal policies or procedures; it may also be the result of an unforeseen external event, such as a natural disaster.
What is risk analysis?
Unfortunately, there is no single way to measure the various types of risk that a company may experience. The practice of risk analysis, however, allows improving outcomes by identifying which kinds of activities are generating losses. By clarifying the true impact that various events may have on the bottom line, risk analysis helps a company to make better decisions as they move forward. It can shed light, for example, on whether IT funds will be best spent on additional security software or on an improved electrical infrastructure.
Working in risk and compliance
Risk and compliance staff works to identify and classify the various types of risk and operational risk encountered by the businesses under a group’s umbrella. It is crucial to a company to continuously improve the employee’s capacity to assess risk in areas such as the financial markets, internal operations, and regulatory compliance. The ideal employee must be a flexible thinker who can adapt his/her skills to collaborate across the various business divisions.
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