Abstract
M.Com. (Business Management)
Financial institutions and regulatory bodies of the financial services industry have, in the last
decade of the 20th century, woken up to the realisation that the risk management procedures
adopted and promoted by them did not take into account all the risks to which financial
institutions were exposed.
The one risk category, made up by an array of risks, that has been acknowledged by financial
institutions and regulatory bodies for some time, but that has not received much recognition in
the risk management procedures is operational risk.
This is quite ironic, as operational risk is the only 'pure" risk, i.e. the only risk with only a
downside potential. Credit, market and underwriting risk, on the other hand, could result in
profits if managed properly. But the losses to which operational risk exposes a financial
institution can be minimised through effective risk management.
Purpose
The greatest obstacle in the process of operational risk management is the fact that there is no
universally accepted definition of operational risk. The main purpose of this study is to perform
an empirical study of the discipline of operational risk management. This includes research on
the subject of operational risk management, assessing the problems experienced in the
operational risk management field, considering the different operational risk strategies that
exist and evaluating qualitative operational risk methodologies as well as the problems
experienced in quantifying operational risk. In conclusion, a definition for operational risk is
suggested, based on the research conducted.