Towards developing guiding principles for managing operational risk appetite

Abstract

Within the context of operational risk management, the understanding of the term operational risk appetite is still vague and not fully implemented by organisations to take advantage of the potential benefits thereof. This study analyses various definitions which serve as a platform for formulating guiding principles in order to manage operational risk appetite. To confirm the applicability and importance of these guidelines they were empirically tested in the banking industry in South Africa. The research indicates that the proposed guiding principles for managing operational risk are valid and that their adoption could lead to potential benefits for a banking organisation. While it is recommended that banks adopt these principles to experience the advantages of managing its operational risk appetite, other corporate organisations may also encounter similar benefits.