What is Operational Risk?

What is Operational Risk?

Operational risk is the potential for loss, disruption, or harm caused by failures in internal processes, people, systems, or external events. Unlike market or credit risk, operational risk arises from the day-to-day functioning of an organization and includes everything from human errors and system outages to fraud and natural disasters.

Sources of operational risk

• People — human error, insufficient training, insider threats, key person dependencies
• Processes — poorly designed workflows, lack of documentation, inadequate controls
• Systems — hardware failures, software bugs, cybersecurity incidents, integration breakdowns
• External events — natural disasters, supply chain disruptions, regulatory changes, third-party failures

Operational risk in compliance frameworks

• SOC 2 — CC3.1 through CC3.4 address risk assessment and management, including operational risks
• ISO 27001 — clauses 6.1 and 8.2 require organizations to identify and treat information security risks, many of which are operational
• NIST CSF — the Identify function (ID.RA) covers risk assessment including operational risk factors

Managing operational risk

• Maintain a risk register that captures identified operational risks with likelihood and impact ratings
• Implement controls proportional to the risk level and document them in a risk treatment plan
• Establish business continuity and disaster recovery plans for high-impact scenarios
• Conduct regular risk assessments to identify new or changing risks
• Monitor key risk indicators (KRIs) to detect emerging operational issues

How episki helps

episki provides risk registers, links risks to controls, and tracks risk treatment plans to help organizations manage operational risk systematically. Learn more on our compliance platform.