Operational risk refers to risk that processes will not operate smoothly after being offshored or outsourced.

Question

BlackTom AI · Accepted Answer

Consider the statement in the question: operational risk and its relation to processes after offshoring or outsourcing.
Option 1 (True): This option asserts that operational risk refers to the risk that processes will not operate smoothly after being offshored or outsourced. In practice, operational risk encompasses the potential for failures in internal processes, people, systems, or external events that disrupt normal operations, including risks introduced or amplified when activities are moved to third parties or overseas. The idea that offshoring or outsourcing can create such process disruptions is consistent with how operational risk is understood in risk management frameworks.
Option 2 (False): This would imply that operational risk has nothing to do with changes in how processes are performed due to offshoring or outsourcing. However, outsourcing arrangements often introduce dependencies on third-party performance, contract terms, and governance, all of which are classic sources of operational risk. Dismissing these connections ignores real risks like service outages, process misalignment, or vendor failures that operational risk models specifically aim to capture.
Option 3 (A nuance to consider): One might argue that operational risk is broader and includes, besides outsourcing concerns, risks from technology failures, fraud, or human error independent of offshoring. While true, the statement remains correct in asserting that post-offshoring/outsourcing process reliability is a component of operational risk, even if not exclusively.
Option 4 (Ambiguity gap): If someone interprets the term narrowly as only internal, non-outsourced processes, they would misclassify the risk. This shows that precise definitions matter, but the core claim about post-outsourcing process reliability aligning with operational risk stands on solid ground.
Overall, evaluating the definitions and typical risk sources, the assertion aligns with standard understanding that operational risk includes potential process disruptions arising from offshoring or outsourcing arrangements.

Operational risk refers to risk that processes will not operate smoothly after being offshored or outsourced.

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