What does operational risk primarily focus on?

Operational risk primarily focuses on losses that stem from internal failures or external events. This type of risk is associated with the processes, people, and systems within an organization. It encompasses a wide range of issues, including but not limited to, employee errors, fraud, system failures, and other disruptions that can impact a company's operations.

These losses can arise from inadequacies or failures in internal processes, such as a breakdown in IT systems or insufficient training of staff, as well as from external events, including natural disasters or regulatory changes. Because operational risk is inherent in all business activities, recognizing it allows organizations to implement policies and controls aimed at mitigating such risks and reducing the potential for financial loss.

While the other options do touch on important aspects of risk, they do not specifically align with the core definition of operational risk. For example, potential loss from external market conditions pertains more to market risk rather than operational risk. Risk assessment for investment strategies relates to investment risk and performance, rather than operational factors. The financial stability of clients is more a concern of credit risk and may impact partnerships, but does not encompass the operational failures that operational risk addresses.