Which of the following best defines operational risk?

The best definition of operational risk is indeed characterized as the risks arising from inadequate internal processes, people, and external events. This definition encompasses the broad range of potential issues that can affect an organization's operation.

Operational risks can stem from several areas including, but not limited to, failures in internal processes—such as errors in transaction processing, inefficiencies, or lack of proper controls. Additionally, this type of risk also involves the human factor, where mistakes or misconduct by employees can lead to losses. External events play a significant role as well, which can include natural disasters, regulatory changes, or cybersecurity threats that disrupt normal operations.

This comprehensive understanding highlights that operational risk is not limited to a specific type of incident or category; rather, it includes various factors that can cause disruptions or losses within an organization’s operations. It shows the interconnectivity of processes, people, and external influences that contribute to the overall risk landscape in a company.

Other definitions presented, while related to risks in general, focus on narrower aspects: fraud pertains specifically to unethical behavior; market fluctuations are related to financial risk; and technological failures, although significant, do not capture the entire spectrum of operational risk that extends beyond just technology.