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OPERATIONAL RISK– this is any risk that is neither credit risk nor market…

- - - - Data collection and management constraints: In practice, it is very difficult to build a truly comprehensive data set – apart from the general lack of data, system constraints and a lack of standardisation mean that the required data feeds from disparate sources cannot be easily developed. This is particularly so in a large organisation. There is also relatively little availability of industry-wide data, as this depends on firms self-reporting and, by definition, it is not straightforward to gain an understanding of high impact, low-frequency events. Firms may also not be allowed to report for legal disclosure reasons.
      - Cultural constraints: Operational risk managers used to find that building momentum and demand for operational risk practices across the business was a constant struggle, but this is no longer the case as firms are capturing data more frequently. Business heads need to be convinced of the value that operational risk management will bring. If not implemented in a well-structured manner it is often seen as a cost to the business, and even a nuisance, rather than a real asset. Consequently, many firms have rolled out risk management frameworks piece by piece, attempting to gain the confidence and support of one area before moving on to another, as it may be that incremental change is easier to embed than structural change.
      - Resource and cost constraints: Firms continually underestimate the amount of time and resources required to implement identification and measurement systems. In an era of tight cost controls, resource constraints put a limit on how quickly or comprehensively implementation is carried out.
      - Indicator constraints: It can be difficult to design risk indicators that monitor the full range of risks. There is a natural tendency to use indicators that are already available (such as existing management information) but these are often designed to monitor performance rather than risk. The extra cost and time required to design and maintain a truly comprehensive set of risk indicators is often prohibitive.