Final answer:
Operational risk refers to the potential for negative impacts on earnings or capital due to internal failures, human error, or external events. Organizations mitigate these risks through robust management strategies.
Step-by-step explanation:
Operational risk in an organizational context can be most accurately defined as the risk of current or anticipated earnings or capital being negatively impacted due to inadequate or failed internal processes, systems, or controls, human errors or misconduct, and adverse external events. It's intrinsic to the daily functions and activities of a company and differs from other forms of risk such as default risk, which refers to the failure of repayment of a loan or bond, and interest rate risk, which is the risk of changes in the market interest rates after having locked in a fixed rate.
Operational risks are often the most challenging to identify and manage because they can arise from so many different sources within an organization. For example, they may stem from employee misconduct, system failures, or from external events such as natural disasters. The consequences of operational risks can include financial losses, reputational damage, and legal liabilities. While it is impossible to eliminate all operational risks, organizations can mitigate them through comprehensive risk management strategies, including internal controls, regular audits, and employee training programs.