Operational Risk: Definition, Features and Classification

Abstract

Defining operational risk is typically portrayed as a prerequisite for a range of tasks, including raising awareness (of operational risk) at the management level and the calculation of regulatory (and economic) capital. Power (2005) argues that definitions of key concepts are “an intimate and central part of the logic of any practice.” He describes definitions as “attention-directing devices and strategies which determine objects of management and regulatory interest.” He even argues that “the process of defining operational risk has been a major regulatory and managerial innovation, creating the conceptual condition of possibility for an emerging discipline.” This may sound somewhat like exaggeration, not to mention that obsession with finding an exact definition of operational risk may be a distraction from a more important task, which is risk management.