Business Disruption

From Open Risk Manual
(Redirected from Business Continuity Risk)

Definition

Business Disruption (Business Continuity Risk) denotes risk of losses arising from the disruption of business or system failures. It is a type of Operational Risk that threatens Business Continuity

Context

Business disruptions of varying kinds and impact are commonplace. Organisations routinely accommodate such risks as computer malfunctions, power failures and transportation disruptions in their business continuity plans.

From a commercial organization's perspective, resilience to operational disruptions has a clear commercial rationale as customers of organisations whose systems are prone to regular failure as a result of relatively common events will inevitably choose to do business with more resilient competitors. In a competitive environment, an organisation typically will weigh its direct benefit from measures to improve its resilience to operational disruptions against the cost of those measures.

Classification

Business disruption is a recognized risk category in regulatory frameworks worldwide (Basel II standards).

Basel Level 2 & 3 Event Type Classification

  • Systems
    • Hardware
    • Software
    • Telecommunications
    • Utility outage / disruptions

Examples by Business Line

Types of business disruption may vary by business line. An indicative list:

  • Retail Banking: Utility outage, Online system failure
  • Payment & Settlement: Failure of payments infrastructure
  • General: IT system failure

Mitigation

Risks in this category can be mitigated by system upgrades, redundant systems etc, broadly falling under Business Continuity Management

Issues and Challenges

  • As with all operational risks, it is difficult to obtain objective measures of the actual business disruption risk, both before and after the application of controls

See Also

External Links


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