What is the focus of operational risk in financial management?

The focus of operational risk in financial management is centered on internal processes and systems. Operational risk encompasses potential losses resulting from inadequate or failed internal processes, people, and systems, or from external events. This area of focus includes risks related to the organization’s internal operational procedures, technology failures, human error, fraud, and other inefficiencies that can disrupt operations and impact the organization’s performance.

By properly managing these internal risks, financial institutions can enhance their reliability and resilience, ensure business continuity, and protect against unexpected operational failures. This emphasis on internal factors distinguishes operational risk management from other types of risk that are more concerned with external influences, strategic decisions, or compliance with regulations. Understanding and mitigating operational risks are crucial for maintaining effective operations and achieving financial stability.