Podcast
Questions and Answers
Which type of impact is primarily associated with internal fraud?
Which type of impact is primarily associated with internal fraud?
- Efficiency
- Financial (correct)
- Service
- Reputation
What secondary impact is linked to external fraud?
What secondary impact is linked to external fraud?
- Reputation (correct)
- Operational Efficiency (correct)
- Regulatory Compliance
- Stock Prices
What factors primarily contribute to the risk of employment practices and workplace safety?
What factors primarily contribute to the risk of employment practices and workplace safety?
- People (correct)
- Technological Advances
- External Factors
- Market Trends
In the context of operational risk, what is a primary cause of business disruption and system failures?
In the context of operational risk, what is a primary cause of business disruption and system failures?
Which category is NOT listed as a type of impact in the bow-tie model?
Which category is NOT listed as a type of impact in the bow-tie model?
What is a secondary impact of execution, delivery, and process management failures?
What is a secondary impact of execution, delivery, and process management failures?
Which primary factor is involved in the category of damage to physical assets?
Which primary factor is involved in the category of damage to physical assets?
What type of categorisation structure do some firms adopt to illustrate operational risk?
What type of categorisation structure do some firms adopt to illustrate operational risk?
Which of the following elements is NOT part of the external environment that influences operational risk?
Which of the following elements is NOT part of the external environment that influences operational risk?
How should an organization determine the frequency of risk re-assessment?
How should an organization determine the frequency of risk re-assessment?
What is critical for effective change management in relation to operational risk?
What is critical for effective change management in relation to operational risk?
What aspect of the external environment includes social media reactions?
What aspect of the external environment includes social media reactions?
Which of the following best describes the relationship between risk culture and decision-making?
Which of the following best describes the relationship between risk culture and decision-making?
Which of the following describes a component of the three lines of defence model?
Which of the following describes a component of the three lines of defence model?
What is the primary goal of monitoring operational risk indicators?
What is the primary goal of monitoring operational risk indicators?
What strategy may be employed when changing regulatory environments impact operational risk?
What strategy may be employed when changing regulatory environments impact operational risk?
What is conduct risk primarily concerned with?
What is conduct risk primarily concerned with?
Which of the following is NOT a factor contributing to new categories of operational risk?
Which of the following is NOT a factor contributing to new categories of operational risk?
How has the definition of operational risk evolved with new categories emerging?
How has the definition of operational risk evolved with new categories emerging?
What impact does conduct risk have on stakeholders beyond customers?
What impact does conduct risk have on stakeholders beyond customers?
What is a primary component that causes operational risk?
What is a primary component that causes operational risk?
In terms of risk management, how should interdependencies between different types of risks be approached?
In terms of risk management, how should interdependencies between different types of risks be approached?
What type of risk is highlighted by a disgruntled employee potentially bringing harm into a workplace?
What type of risk is highlighted by a disgruntled employee potentially bringing harm into a workplace?
Which action is an example of poor conduct risk management?
Which action is an example of poor conduct risk management?
Which of the following describes a management strategy for inherent risks associated with business operations?
Which of the following describes a management strategy for inherent risks associated with business operations?
What type of operational risks may necessitate specialist department support for management?
What type of operational risks may necessitate specialist department support for management?
Which option is a common practice for improving business processes to mitigate risk?
Which option is a common practice for improving business processes to mitigate risk?
What is a characteristic of external environmental impacts on operational risks?
What is a characteristic of external environmental impacts on operational risks?
Which risk management approach is NOT suitable for rare and unexpected risks?
Which risk management approach is NOT suitable for rare and unexpected risks?
How can an organization manage operational risks related to natural disasters?
How can an organization manage operational risks related to natural disasters?
What may be a consequence of failing to adequately manage risks in an organization?
What may be a consequence of failing to adequately manage risks in an organization?
In what way can firms integrate risk management into decision-making processes?
In what way can firms integrate risk management into decision-making processes?
How should reports on material events be handled to ensure effective risk management?
How should reports on material events be handled to ensure effective risk management?
What is essential for risk indicators to be considered fit for purpose?
What is essential for risk indicators to be considered fit for purpose?
In the context of effective risk culture, how should changes be managed?
In the context of effective risk culture, how should changes be managed?
What should be done if problems are not resolved in risk management?
What should be done if problems are not resolved in risk management?
How often should risk and control assessments be conducted?
How often should risk and control assessments be conducted?
What is a key factor in evaluating the effectiveness of scenarios in risk management?
What is a key factor in evaluating the effectiveness of scenarios in risk management?
What aspect of risk communication is crucial within an organization?
What aspect of risk communication is crucial within an organization?
What defines operational risk in relation to external factors?
What defines operational risk in relation to external factors?
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Study Notes
Operational Risks in Business
- Hurricanes can disrupt operations for asset management firms, especially in hurricane-prone regions.
- Seasonal power cuts challenge IT systems in insurance firms, necessitating integrated risk management strategies within business planning.
- Effective risk management includes incorporating inherent risks into product pricing or using budget allocations and accounting provisions when risks cannot be directly priced.
- Investment in streamlining business processes is essential for mitigating risks associated with environmental disruptions.
Unexpected Operational Risks
- Unpredictable operational risks may occur infrequently and are not necessarily inherent to a company’s environment.
- Examples include:
- Cyber warfare escalating and disrupting IT infrastructures.
- Solar storms causing damage to physical assets.
- Rapid epidemic spread leading to business operation disruptions.
- Management of these risks often requires collaboration with specialized departments, such as Business Continuity Management.
Risk Management Strategies
- Capital reserves, insurance, and investments in controls are common strategies for managing unexpected operational risks.
- Organizations may employ various models, such as the bow-tie model, to categorize operational risk by causes and impacts.
- Impacts can be classified into five types: financial, efficiency, service, lost business opportunities, and reputational.
External Environment Influences
- Changes in the external environment affect operational risk, including political, regulatory, economic, social, technological, environmental, and legal factors.
- Continuous risk identification, assessment, monitoring, and management are crucial due to the dynamic nature of risks and risk appetites.
- Review frequency of risks can vary, some requiring more frequent attention than others.
Governance and Risk Culture
- Operational risk governance involves defining roles and responsibilities aligned with the "three lines of defence" framework.
- Identifying and cultivating a healthy risk culture is integral to influencing decision-making within firms, highlighting the significance of understanding risk culture.
Roles and Responsibilities in Operational Risk Management
- Operational risk functions must address interdependencies among various risk types, including third-party, compliance, IT, health and safety, and business continuity risks.
- New categories of risk, such as conduct risk, have emerged, focusing on firms' behaviors and their impacts on stakeholders and market integrity.
- Important assessments in managing conduct risk include analyzing event reports, risk indicators, and the effectiveness of risk control assessments.
Importance of Change Management
- Change management is essential in operational risk management due to the continuous evolution of both internal and external environments.
- Internal changes relate to strategy, objectives, or organizational structure, while external factors can include unexpected events or shifts in market dynamics that directly impact operational risks.
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