What is the Meaning & Definition of operational risk
Operational risk is a concept that is widely used in business and finance.
It is made as we observe two u-boat terms in our language as they are, risk and operational.
Risk refers to the proximity, either damage or danger, i.e., it is most likely causing a dangerous or damaging situation.
And Furthermore, the operational Word is used to refer to those commercial operations or all linked to the same.
Then, the operational risk is a concept that allows you to call that scenario in which the succession of financial losses in a company, for example, as a result of fault or failure in terms of individuals, processes, internal systems, technology, or the events of some external event which was not expected and ending unexpectedly damaging the economic gait of a company is possible.
Vale highlighted that two variables, to evaluate this risk are taken into consideration such is the case of: the probability that there is happening a risky event for the company in question and that can be elucidated through knowledge of the number of times in which it detects the presence of events that are cause of risk. And on the other hand is considered the gravity that boast events risks on the assets of the undertaking.
Meanwhile, when measuring operational risk will be able to opt for three different methods: the basic indicator method (in this calculate the capital requirement on the basis of a ratio determined by the average of the positive, and yearly gross income obtained in the past three years), standard method (this will calculate the gross income in each line of business and each one them is multiplied by a factor that estimate exposure that holds the line in question. This allows to verify the provision of capital for each of the lines and finally the total capital requirement shall be the sum of the requirements present in each of the lines) and advanced measurement method (this provides a measure of the capital more adjusted to the situation of each company and makes it through the estimation of probability distribution functions).
It is made as we observe two u-boat terms in our language as they are, risk and operational.
Risk refers to the proximity, either damage or danger, i.e., it is most likely causing a dangerous or damaging situation.
And Furthermore, the operational Word is used to refer to those commercial operations or all linked to the same.
Then, the operational risk is a concept that allows you to call that scenario in which the succession of financial losses in a company, for example, as a result of fault or failure in terms of individuals, processes, internal systems, technology, or the events of some external event which was not expected and ending unexpectedly damaging the economic gait of a company is possible.
Vale highlighted that two variables, to evaluate this risk are taken into consideration such is the case of: the probability that there is happening a risky event for the company in question and that can be elucidated through knowledge of the number of times in which it detects the presence of events that are cause of risk. And on the other hand is considered the gravity that boast events risks on the assets of the undertaking.
Meanwhile, when measuring operational risk will be able to opt for three different methods: the basic indicator method (in this calculate the capital requirement on the basis of a ratio determined by the average of the positive, and yearly gross income obtained in the past three years), standard method (this will calculate the gross income in each line of business and each one them is multiplied by a factor that estimate exposure that holds the line in question. This allows to verify the provision of capital for each of the lines and finally the total capital requirement shall be the sum of the requirements present in each of the lines) and advanced measurement method (this provides a measure of the capital more adjusted to the situation of each company and makes it through the estimation of probability distribution functions).