The risk of loss due to errors by people or flaws in processes. Operational risk also includes instances of fraud.
Example:
You assume your spouse will be making the payments on a monthly utility bill.
Downside Scenario:
Your spouse assumes you are making the payment, and you suffer a late payment fee.
Upside Scenario:
Your assumption is correct. The bill is paid, and you are able to fit in a round of golf on a beautiful day.
The infamous Enron debacle was an operational risk realization on a massive scale. Fraud initiated at the highest level of the firm cost employees billions of dollars in salaries as well as pension and health benefits.
Related terms:
People Risk
The risk of loss or damage due to people’s acts of commission or omission.