Name: Rifqi Faizurrahman Syamsudin

Student Id: 1501213400

Class: AB-45-INT

Summary of Week 7 Material

Operational risk refers to the possibility of business operations failing due to inefficiencies
or breakdowns in internal processes, people, and systems, as well as external events.
The Basel Committee on Banking Supervision defines operational risk as the risk of loss
resulting from inadequate or failed internal processes, people, systems, or external
events. Operational risk management aims to identify, assess, monitor, and mitigate these
risks to ensure business continuity and growth. The video covers various aspects related
to operational risk, including the types of operational risks, impacts of operational risks,
benefits of operational risk management, and how operational risk management works. It
emphasizes the importance of a comprehensive business risk assessment to prioritize
and address risks based on their significance and impact on the organization's strategic
objectives.

Types of operational risks discussed include fraud, criminal activity, workplace policies
and safety, product and business practices, physical assets, business disruption, and
process management. These risks can range from minor inconveniences to potentially
jeopardizing the existence of a business. If operational risks materialize, they can lead to
outright loss, regulatory overhead, and reputational damage. Operational risk
management is a continuous process of assessing risks and implementing relevant
controls to either accept, mitigate, or avoid risk. It involves understanding the nature of
the business and associated risks to achieve operational risk goals. The video highlights
the role of corporate leaders, engineers, maintenance engineers, operators, procurers,
suppliers, and transporters in mitigating risk throughout the organization.

The concept of integrated risk management (IRM) is introduced, where software and
technology help organizations predict significant risks and connect different risk mitigation
areas. IRM can provide prescriptive advice and help mitigate incidents before they occur.
The video emphasizes that creating a culture of operational risk management and
mitigation is crucial for corporate leaders to ensure safety, sustainability, and productivity.
The benefits of operational risk management include improving the reliability and
effectiveness of business operations, strengthening risk management operations, and
enhancing the decision-making process. Operational risk management also helps prevent
unexpected operational loss, reduces compliance and auditing costs, detects unlawful
activities, and minimizes exposure to future risks.
The video provides an in-depth understanding of operational risk and its management.
Operational risk refers to the possibility of business operations failing due to internal
process inefficiencies, human error, or external events. The Basel Committee on Banking
Supervision defines operational risk as the risk of loss resulting from inadequate internal
processes, people, systems, or external events. It highlights the types of operational risk,
such as fraud, workplace policies, physical assets, business disruption, and process
management. It emphasizes the impacts of operational risk, including financial loss,
regulatory overhead, and reputational damage. Operational risk management is crucial
for reducing risk exposure and operating costs, improving business operations' reliability
and effectiveness, and strengthening decision-making processes. The principles of
operational risk management are outlined, including not accepting unnecessary risk,
making risk decisions at the appropriate level, accepting risk when benefits outweigh
costs, and integrating risk management into planning at all levels.

The operational risk management process consists of five stages: risk identification, risk
assessment, risk mitigation, implementation of risk controls, and monitoring and review.
Risk identification involves understanding the organization's objectives and involving staff
from all levels. Risk assessment rates risks based on likelihood and impact. Risk
mitigation involves choosing strategies to reduce, mitigate, or eliminate risks, such as risk
transfer, avoidance, acceptance, or control. Implementation of risk controls requires
formulating a plan and ensuring resources are available. Monitoring and review ensure
the effectiveness of controls and regular assessments. The keys to reducing operational
risk include creating new business processes or adjusting existing ones, assigning tasks
to the right people, streamlining and automating business processes, brainstorming
exceptions, measuring performance and exceptions, adopting an ongoing approach to
risk assessment, and reviewing risk assessment regularly.

Overall, the video provides comprehensive insights into operational risk and its
management, emphasizing the importance of identifying, assessing, mitigating, and
monitoring risks to achieve organizational goals and reduce potential damages. Effective
management of operational risks is crucial for maintaining the reputation and financial
stability of a business. A robust risk mitigation strategy is necessary to prevent operational
failures and crises within the organization. Businesses often invest in designing a
comprehensive risk management framework that follows a seven-step approach to
mitigate operational risks.

The seven-step approach includes:

1. Task Segregation: Segregating tasks and duties reduces the risk of internal theft
and fraud by preventing individuals from exploiting various aspects of transactions
and business processes.
 2. Curtailing Complexities: Reducing complexity in business processes helps mitigate
operational risks. This can be achieved by minimizing manual activities, the
number of people involved, and exceptions during processes.

3. Reinforcing Organizational Ethics: Establishing strong organizational ethics is

essential for mitigating operational risk. By aligning workforce values and principles
with the organization's ideology, ethical behavior can be promoted.

4. Right People for the Right Job: Having the right people in appropriate roles reduces
execution issues, skill gaps, and technology-related problems. It leads to improved
workforce utilization, adherence to timelines, enhanced quality, and fewer errors.

5. Regular Monitoring and Evaluation: Effective business processes require

welldesigned performance indicators and continuous monitoring. Key performance
indicators (KPIs) help in timely risk detection and mitigation, enabling proactive
management.

6. Periodic Risk Assessment: Regular assessments of operational risks ensure a

robust risk management framework. It is important to stay prepared by ensuring
regulatory compliance, evaluating IT assets, skills, competencies, processes, and
making objective business decisions.

7. Look Back and Learn: Analyzing past risk incidents and the effectiveness of
remedial actions helps in developing strategies to counter future risks. It supports
the implementation of a proactive operational risk management framework and
facilitates real-time adjustments to match the current operating environment.

In conclusion, operational risk management is essential to prevent business operations

from failing due to internal and external factors. Operational risks can have significant
negative impacts on a business, making it crucial to effectively manage and mitigate these
risks through a continual process of assessment, control implementation, and risk
avoidance or acceptance.