What is an Operational Risk? Explain type of Operational Risk which having the potential to result in substantial losses.

Operational risk is the risk of loss resulting from inadequate or failed internal processes of an organisation, in human actions, systems or due to external events. Problems related to operation risks arise because of inadequate attention given to the processes and systems, or because people fail in their performance, or their functions are poorly defined. Operational risks are difficult to define because of the broad spectrum or potential loss events, it covers. According to the segment where the company acts, this may be subject to various operational risks inherent to the business. Operational risks varies from one business to another depending upon the segment in which it operates. Operational risk has been defined by the Basel Committee on Banking Supervision as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes legal risk, but excludes strategic and reputational risk. Operational risk identifies why a loss happened and at the broadest level includes the breakdown by four causes i.e. People, Processes, Systems and External factors. Types of operational risk events as identified by The Basel Committee having results in substantial losses: Internal Fraud: Examples: employee theft etc. External Fraud: Examples: robbery, forgery etc. Employment practices and workplace safety: Examples: violation of employee health and safety rules. Clients, products and business practices: Examples: misuse of confidential customer information, Fiduciary breaches etc. Damage to physical assets: Examples: Vandalism by disgruntled employees, Earthquakes, Fires and floods etc. Business disruption and system failure: Examples: Computer hardware and software failures etc. Execution, delivery and process management: Examples: incomplete legal documentation.