What is meant by operational risks?

Operational risks refer to the potential losses that an organization may face due to inadequate or failed internal processes, people, or systems. This definition encompasses a broad range of factors including, but not limited to, human error, system failures, inadequate or failed internal procedures, and external events that disrupt business operations.

For instance, if a key employee fails to follow proper procedures, it can lead to significant operational disruptions or even financial losses. Similarly, if a company's software system goes down due to poor maintenance or unexpected bugs, it can adversely affect day-to-day activities and take time and resources to rectify. Recognizing operational risks is essential for organizations as it helps them to develop strategies to mitigate these risks, improve processes, and enhance overall operational resilience.

In contrast, the other options represent narrower or unrelated concepts. Risks associated only with natural disasters do not encompass the broader scope of operational risks, which involve day-to-day functioning and internal processes. Risks related to financial transactions fall under financial risks rather than operational risks. Also, risks that do not impact daily operations are not classified within operational risks because such risks would not pertain to an organization’s ability to function effectively on an ongoing basis.