What is an example of operational risk?

Operational risk refers to the potential for loss resulting from inadequate or failed internal processes, systems, or external events that affect the smooth functioning of an organization. An example of this is the risk of loss resulting from internal processes failing, which encompasses a wide range of issues, including human error, technological failures, and improper procedures.

This understanding is central to risk management practices as operational risk can significantly impact an organization’s ability to conduct its business effectively. Identifying and mitigating these risks is essential for maintaining operational efficiency and safeguarding against potential financial losses.

In contrast, the other choices reflect different types of risks. The risk of natural disasters falls under environmental or external risks, the risk of losing a key client pertains to business risk related to client relationships, and the risk of equipment malfunction, while relevant, is just one aspect of the broader category of operational risks and does not encompass the full scope of potential internal failures.