Corporate Risk & Valuation · Entry 03 of 71

What Is Operational Risk?

Failures in processes, systems, and human actions

Core Definition

Operational Risk refers to the possibility of financial loss due to failures in a company's internal processes, people, or systems.

Key Characteristics

1. Includes risks from human error, system failures, or procedural breakdowns: This ranges from IT crashes and cybersecurity breaches to internal fraud and simple employee mistakes.
2. Impacts the company's efficiency and financial stability: Operational disruption often leads to lost revenue, regulatory fines, and immediate unbudgeted costs.