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make a risk management
strategies.
RISK MANAGEMENT
The process of
Identification, analysis
and either acceptance or
mitigation of uncertainly
in any decision-making
TAN,BARBIE SHANE
BSTM1B
RISK MANAGEMENT
Identify the operational risks (specific example/s or event/s) that we
can encounter in our daily basis in the industry in line with the
sources of risk that we have discussed
Operational risk is defined as "the risk of loss originating from insufficient or failing
internal processes, people, and systems, or from external events." This definition covers
legal risk but leaves out strategic risk and reputation risk. The term "legal risk" in the
context of Basel II refers to the possibility of receiving fines, penalties, or punitive
damages as a consequence of supervisory proceedings as well as individual settlements.
Examples:
Example 1: You instruct your stock broker to buy Starnet shares but the broker
erroneously places a sell order instead of a buy order. This will result in losses and the
losses will be magnified should the market move in another direction rather than
remaining stable.
Example 2: A bank that is disbursing loans forgets to collect customer information,

captures it erroneously, or loses it. In the case of a financial crisis that causes defaults,
the loss will be exacerbated since the bank won't be able to collect the debt even from
those who might have paid because they lack sufficient customer information to start a
debt collection process. Although the 2008 Financial Crisis has historically been viewed
as a credit risk event, a deeper examination reveals that operational risk really
exacerbated the situation. Ineffective or flawed processes led to a number of process
failures that looked to be external events, such as missing or insufficient loan documents
and personal information misrepresentation.
Example 3: The potential for failure (including the legal component) in relation to
employees, contractual specifications, documentation, technology infrastructure and
disasters, external influences, and customer relationships is defined by Deutsche Bank.
Example 4: When the government prohibited the use of foreign currency, many forex-
based business models failed. For example, many companies were unable to process
payments and salaries because old payment systems did not recognize the new currency.
Example 5: The management of such risks is incorporated into the structuring and
conduct of commercial operations. For instance, businesses may control these risks by
factoring them into the cost of their products. Alternatives include increasing accounting
allowances, including it in business budgets, or investing in boosting the effectiveness of
business procedures.
Event Type Definition
Losses coming from a conduct involving at least one internal party that is
Internal Fraud intended to deceive, misappropriate money, or violate corporate policy
without regard for discrimination or diversity, such as tax evasion or bribery
Losses brought on by third-party actions intended to defraud,

External Fraud misappropriate assets, or break the law, such as theft, forgeries, and hacking
Losses resulting from violations of workplace safety and employment laws,

Employment health or safety agreements, payment of personal injury accident injury
claims, and payments resulting from diversity and discrimination events,
Practices
such as claims of wrongful termination, discrimination, or harassment
Clients. Products Losses caused by the inadvertent or careless breach of a professional duty to
a particular client or by the nature of a product's design, such as those
&Business caused by market manipulation, antitrust violations, inappropriate trading,
Practice product flaws, fiduciary breaches, or account churning.
Damage to Losses resulting from the destruction or loss of physical assets due to
terrorism, vandalism, and other occurrences.
Physical Asset
Business
Losses brought on by system failures or business disruptions, such as utility
Disruption & outages or disruption, hardware failures, software problems,
System Failures
Execution,
Losses resulting from improper transaction processing or process
Delivery management, interactions with business rivals, such as mistakes made during
data input or accounting, failure to submit required reports, careless
&Process
misappropriation of client assets, and vendor conflicts
Management

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make a risk management

Example 2: A bank that is disbursing loans forgets to collect customer information,

Losses brought on by third-party actions intended to defraud,

Losses resulting from violations of workplace safety and employment laws,

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