What is defined as the risk of loss from inadequate or failed internal processes, people, systems, or external events?

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, personnel, systems, or external events. This type of risk encompasses a wide range of potential issues, including but not limited to fraud, technology failures, and natural disasters that disrupt normal business operations. It emphasizes the importance of having robust operational procedures and systems in place to mitigate these risks and ensure the organization can continue to function effectively even when unforeseen events occur.

Understanding operational risk is crucial because it directly affects an organization's day-to-day functioning and can have serious financial repercussions if not managed appropriately. This type of risk often requires continuous monitoring and improvement of internal controls and processes to manage and mitigate potential losses effectively.