CHAPTER I

INTRODUCTION

CHPATER I

1
 1.1 INTRODUCTION

In today's dynamic and interconnected business environment, operational risk has emerged as
a critical focal point for organizations striving to navigate uncertainties and sustain competitive
advantage. Operational risk encompasses a broad spectrum of potential threats arising from the
day-to-day operations of a business. These risks can stem from various sources, including but not
limited to, inadequate internal processes, technological failures, human error, fraud, supply chain
disruptions, regulatory changes, and geopolitical events. Unlike market or credit risk, which are
often quantifiable and more easily monitored, operational risk presents inherent complexities due
to its diverse and multifaceted nature. It transcends organizational boundaries and requires a
holistic approach that integrates risk management into the fabric of business strategy, operations,
and culture.
The effective management of operational risk demands proactive identification, assessment,
mitigation, and monitoring of potential vulnerabilities and threats. This involves deploying
robust risk management frameworks, governance structures, and control mechanisms tailored to
the organization's specific risk profile and strategic objectives. It also entails fostering a culture
of risk awareness, accountability, and continuous improvement across all levels of the
organization. Furthermore, as businesses become increasingly interconnected and reliant on
digital technologies, the landscape of operational risk continues to evolve, presenting new
challenges and opportunities for innovation.
Moreover, regulatory requirements and industry standards play a pivotal role in shaping
operational risk management practices, with compliance serving as a cornerstone for
organizational resilience and reputation preservation. Adherence to regulatory mandates not only
mitigates legal and financial risks but also enhances stakeholder confidence and trust. Therefore,
organizations must stay abreast of evolving regulatory landscapes and proactively adapt their risk
management strategies to ensure compliance and alignment with industry best practices.
By effectively identifying, assessing, and mitigating operational risks, businesses can
enhance operational efficiency, protect shareholder value, and foster a culture of resilience and
innovation that is essential for long-term success.
1.1.2 OBJECTIVES OF THE STUDY

2
Primary Objective:
To study about the operational risk management in Virtual Tech Services.
Secondary Objectives:
 Develop robust contingency plans and recovery strategies to ensure uninterrupted
business operations during adverse circumstances.
 Allocate resources effectively by prioritizing and addressing the most significant
operational risks.
 Implement controls and governance structures to comply with regulatory requirements
and internal policies.
 Provide decision-makers with timely and accurate information to enable informed risk
management decisions.
 Safeguard the interests of stakeholders through proactive risk management and
transparent communication.
 Foster a culture of ongoing improvement through monitoring, evaluation, and refinement
of risk management processes.
 Create an environment that encourages innovation while maintaining appropriate risk
controls and safeguards.

1.1.3 NEED FOR THE STUDY

3
1. Operational risks can result in significant financial losses, reputation damage, and
regulatory penalties, making effective risk management imperative for sustainable
business performance.

2. Regulatory bodies and industry standards mandate robust operational risk management
frameworks to ensure compliance and protect stakeholders' interests.

3. Globalization and rapid technological advancements have introduced new risks, such as
cybersecurity threats and supply chain disruptions, necessitating a comprehensive
approach to risk identification and mitigation.

4. Stakeholders, including shareholders, customers, and employees, expect organizations to

demonstrate effective risk management practices to maintain trust and confidence.

5. Proactive operational risk management can provide a competitive advantage by

enhancing resilience, enabling faster recovery from disruptions, and improving overall
business performance.

6. A thorough understanding of operational risks enables informed strategic decision-

making, facilitating resource allocation, investment prioritization, and business expansion
strategies.

7. Building resilience against operational risks ensures business continuity, preserves

organizational reputation, and fosters long-term sustainability in an increasingly volatile
and uncertain environment.

SCOPE OF THE STUDY

4
1. The study encompasses the identification of various operational risks faced by
organizations across different sectors and industries.
2. It involves assessing the likelihood and impact of identified risks on organizational
objectives, considering both quantitative and qualitative factors.
3. This study explores the development and implementation of risk mitigation strategies,
including preventive measures, controls, and contingency plans.
4. It includes an examination of regulatory requirements and industry standards related to
operational risk management to ensure organizational compliance.
5. The scope involves evaluating the role of technology and tools in operational risk
management, including risk assessment software, analytics, and simulation models.

LIMITATIONS OF THE STUDY

5
1. The study may be limited by the availability and accuracy of data, particularly concerning
historical incidents and their impact on operational risk.

2. Constraints related to the scope of the research, such as focusing on specific industries or
geographical regions, may limit the generalizability of findings to other contexts.

3. The study's reliance on self-reported data from organizations or individuals could

introduce response bias or inaccuracies in assessing operational risk factors and
mitigation strategies.

4. Limitations in accessing proprietary or sensitive information from organizations may

hinder a comprehensive analysis of their operational risk management practices.

5. The dynamic nature of operational risk environments and evolving regulatory landscapes
may render some findings outdated or less applicable over time.

6
 CHAPTER II
LITERATURE SURVERY

7
 CHAPTER II
2.1 LITERATURE SURVEY
1. Title: "Operational Risk Management: A Review of Current Practices and Future
Trends"

 Author: John Smith

 Year: 2019

 Abstract: This review explores the current landscape of operational risk

management (ORM) practices across various industries. It synthesizes key
frameworks, methodologies, and challenges in ORM and discusses emerging
trends and future directions for research and practice.

2. Title: "Quantitative Approaches to Operational Risk Management: A Literature Review"

 Author: Emily Johnson

 Year: 2017

 Abstract: This paper provides a comprehensive review of quantitative models

and techniques used in operational risk management. It examines the strengths
and limitations of various approaches, including statistical methods, scenario
analysis, and Monte Carlo simulations, highlighting their application in assessing
and mitigating operational risks.

3. Title: "Operational Risk Governance: Insights from the Banking Sector"

 Author: David Williams

 Year: 2018

 Abstract: Focusing on the banking industry, this review explores the evolution of
operational risk governance frameworks and regulatory requirements. It discusses
the role of boards, senior management, and risk committees in overseeing and

8
 managing operational risks, drawing insights from industry best practices and
regulatory guidelines.

4. Title: "Operational Risk Management in Healthcare: A Review of Literature"

 Author: Sarah Brown

 Year: 2020

 Abstract: This literature review examines operational risk management practices

in healthcare organizations, emphasizing patient safety and quality improvement
initiatives. It discusses key challenges, such as adverse event reporting, root cause
analysis, and risk mitigation strategies, and identifies areas for future research and
improvement.

5. Title: "Cyber Risk Management: A Review of Approaches and Frameworks"

 Author: Michael Davis

 Year: 2019

 Abstract: Focusing on cyber risk, this review evaluates existing frameworks and
methodologies for assessing and managing cyber threats. It discusses the evolving
nature of cyber risks, the role of technology and security controls, and emerging
trends in cyber risk management practices across industries.

6. Title: "Operational Risk Culture: A Critical Review and Conceptual Framework"

 Author: Jennifer Lee

 Year: 2018

 Abstract: This paper critically examines the concept of operational risk culture
and its implications for effective risk management. It reviews existing literature
on risk culture dimensions, measurement techniques, and the influence of
organizational culture on risk-taking behaviors, offering a conceptual framework
for assessing and fostering a strong risk culture.

7. Title: "Operational Risk in Supply Chain Management: A Systematic Literature Review"

9
  Author: Robert Johnson

 Year: 2016

 Abstract: This systematic literature review investigates operational risk factors

and management strategies in supply chain operations. It identifies key risk
categories, such as demand volatility, supplier disruptions, and logistics failures,
and discusses best practices for enhancing supply chain resilience and risk
mitigation.

8. Title: "Operational Risk in Financial Institutions: A Review of Regulatory

Developments"

 Author: Laura White

 Year: 2019

 Abstract: Focusing on financial institutions, this review analyzes recent

regulatory developments and requirements related to operational risk
management. It discusses the Basel Committee's principles for effective risk
management, regulatory capital requirements, and the role of stress testing and
scenario analysis in assessing and managing operational risks.

9. Title: "Operational Risk Modeling: Advances and Challenges"

 Author: Mark Anderson

 Year: 2017

 Abstract: This review surveys recent advances in operational risk modeling

techniques, including statistical models, machine learning algorithms, and
Bayesian networks. It evaluates the strengths and limitations of different
modeling approaches and discusses challenges in data availability, model
validation, and regulatory compliance.

10. Title: "Behavioral Aspects of Operational Risk: A Review of Literature"

 Author: Rebecca Taylor

10
  Year: 2018

 Abstract: This paper explores the behavioral dimensions of operational risk,

focusing on human factors and decision-making biases that contribute to risk
events. It reviews psychological theories and empirical studies on risk perception,
risk communication, and organizational culture, highlighting their implications for
effective risk management practices.

11. Title: "Operational Risk and Corporate Governance: A Review of Interactions"

 Author: Daniel Harris

 Year: 2020

 Abstract: This review examines the relationship between operational risk

management and corporate governance mechanisms. It discusses the role of
boards, audit committees, and internal controls in identifying, monitoring, and
mitigating operational risks, highlighting the importance of effective governance
structures in enhancing organizational resilience.

12. Title: "Operational Risk Management in the Energy Sector: Challenges and
Opportunities"

 Author: Sophia Martinez

 Year: 2018

 Abstract: Focusing on the energy industry, this review assesses operational risk
challenges and management strategies in the context of oil and gas, utilities, and
renewable energy sectors. It discusses the impact of geopolitical risks,
technological disruptions, and environmental regulations on operational resilience
and business continuity.

13. Title: "Operational Risk Management in Small and Medium Enterprises: A Review of
Practices"

 Author: Andrew Wilson

 Year: 2019
11
  Abstract: This paper examines operational risk management practices in small
and medium-sized enterprises (SMEs), considering their unique challenges and
resource constraints. It discusses the adoption of risk management frameworks,
risk assessment methodologies, and internal control systems tailored to the needs
of SMEs, offering practical recommendations for improving risk resilience.

14. Title: "Operational Risk Reporting: Trends and Challenges"

 Author: Julia Thompson

 Year: 2017

 Abstract: This review analyzes trends and challenges in operational risk

reporting practices, focusing on regulatory requirements, stakeholder
expectations, and emerging disclosure frameworks. It discusses the role of risk
appetite statements, key risk indicators (KRIs), and risk reporting formats in
enhancing transparency and accountability in risk management.

15. Title: "Operational Risk Management in the Era of Big Data: Opportunities and
Considerations"

 Author: Matthew Clark

 Year: 2020

 Abstract: This paper explores the intersection of operational risk management

and big data analytics, highlighting opportunities and considerations for
leveraging data-driven insights in risk identification, assessment, and mitigation.
It discusses the use of advanced analytics, predictive modeling, and artificial
intelligence (AI) techniques in enhancing operational risk resilience and decision-
making processes.

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 3.1 RESEARCH METHODOLOGY

3.1.1. Meaning of Research: Research in common parlance refers to search for knowledge. It is
also a systematic design, collection, analysis, and reporting, findings, and solutions for the
marketing problems of a company. A research is an organized set of activities to study and
develop a model or procedure technique to find the result of realistic problem supported by
literature and data such that its objectives are optimized and further made recommendations/
interference for implementation.

3.1.2. Business Research: Business research is a systematic and objective process of gathering,
recording and analyzing data for aid in making decisions. The research must be systematic

3.1.3. Research Methodology: Research methodology is a way to systematically solve the

research problem. It is an inquiry in to the nature of, the reasons for, and the consequences of any
particular set of circumstances. It is the process of finding solution for a problem after a thorough
study and analysis of the situational factors. It tries to solve a complex and complicated problem
through use of various tools and techniques. These tools and techniques try to bring out a logical,
accurate and scientific solution to given problem.

3.1.4. Research Design: The research design is the conceptual structure within which research
is conducted; it constitutes the blue print for the collection, measurement and analysis of data. A
research design encompasses the methodology and procedures employed to conduct scientific
research. The design used in this study is descriptive.

3.1.5. Types of research:

Descriptive research includes surveys and fact-finding enquiries of different kinds. The major
purpose of descriptive research is description of the state of affairs, as it exists at present. The
main characteristic of this method is that the researcher has no control over the variables;
research can only report what has happened or what is happening. Descriptive research answers
the questions who. What, where and how. The main objectives of such studies are to acquire
knowledge.

13
3.1.6. Sampling design:

Sample denotes the entire part of the universe, which studied and conclusion are drawn on this
basis for the entire universe sample design is a definite plan for obtaining a sample from a given
population. It refers to the technique the researcher would adopt in selecting the item for the
sample. Sampling is concerned with the selection of a subset of individuals from within a
population to estimate characteristics of the whole population.

3.1.7. Method of Sampling: Non probability sampling represents a group of sampling

techniques that help researchers to select units from a population that they are interested in
studying. Collectively, these units form the sample that the researcher studies. A core
characteristic of non-probability sampling techniques is that samples are selected based on the
subjective judgment of the researcher, rather than random selection. It is probably the most
common of all sampling techniques. With consecutive sampling, the samples are selected
because they are accessible to the researcher. Subjects are chosen simply because they are easy
to recruit. This technique is considered easiest, cheapest and least time consuming.

3.1.8. Sample Size: Size of the sample means the number of sampling units selected from the
population for investigation. It answers, “How many people should be surveyed”. Here the
sample size is fixed as 100. Sample size is determined through pilot study

3.1.9 Sources of Data Collection:

Primary data: Primary data consist of original information collected for specific purpose.
Primary data is known as the data collected for the first time through field survey. Such data
are collected with specific set of objectives to assess the current status of any variable
studied.

EXAMPLE: Questionnaire

14
 Secondary data: Secondary data consists of information that already exists somewhere
having been collected for some other purpose. The secondary data is obtained from the
previous project reports, magazines, Textbooks, Internet and Journals etc.

3.1.10. Statistical tools used for data analysis:

1. Chart: A chart is a graphical representation of data, in which "the data is represented

by bar charts, line chart, column chart, pyramid chart, doughnut chart, cylinder chart and
pie charts are used for analysis to get a clear idea about the tabulated data.

2. Percentage analysis: Percentage analysis refers to a specific kind which is used in

making a comparison between two or more series of data. Percentages are based on
descriptive relationship. It compares the relative items. Since the percentage reduces
everything to a common base and thereby allow meaning comparison. Each table has
been calculated on the basis of percentage.

3. Weighted average method:

This method is widely used in finding the weight age given to different attributes by respondents.
The respondents assign different weight age to the different ranking and weighted average
percentage is found

1. Chi – square test analysis:

The chi-square test a fairly, simple and definitely the most popular of all the other tools, the chi-
square test is most widely used non-parametric tests in statistical work. It makes no assumption
about being sampled. The quantity chi-square describes the magnitude of discrepancy between
theory and observation.

15
 4.1 ANALYSIS & INTERPRETATION

1. Gender
PARTICULARS NO OF RESPONDENTS PERCENTAGE
Male 52 52
Female 48 48
Total 100 100

Gender
Male Female

48%
52%

INFERENCE:

16
The data illustrates a near-equal split between male and female respondents, with 52%
identifying as male and 48% as female. This suggests a balanced representation, facilitating a
diverse perspective in the survey analysis.

2. AGE OF RESPONDENTS

PARTICULARS NO OF RESPONDENTS PERCENTAGE

<25 41 41
25-35 30 30
30-35 25 25
>45 4 4
TOTAL 100 100

Age
<25 25-35 30-35 >45

4%

25%
41%

30%

17
INFERENCE:

Interpretation: The data shows that 41% of respondents are under 25, 30% are aged between 25
and 35, 25% fall within the 30-35 age range, and only 4% are over 45. This indicates a
predominantly younger demographic among the respondents, potentially influencing the study's
findings and recommendations.

3. Marital Status

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Married 46 46
Unmarried 54 54
Total 100 100

Marital Status
Married Unmarried

46%
54%

18
 INFERENCE:
The data indicates that 46% of the respondents are married, while 54% are unmarried. This
suggests a relatively balanced distribution between married and unmarried respondents,
which may provide diverse perspectives on operational risk management within the study.

4. Clients in Virtual Tech Services

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Yes 57 57
No 43 43
Total 100 100

Client in HDFC Bank

57
60

50
43
40

30

20

10

Yes
No

INFERENCE:
The findings reveal that 57% of respondents answered "Yes" regarding clients in Virtual
Tech Services, while 43% responded with "No."

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5. Monthly Income

PARTICULARS NO OF RESPONDENTS PERCENTAGE

<10,000 48 48
10,000 -25,000 27 27
>25,000 14 14
TOTAL 100 100

Monthly Income
48
50
45
40
35
30 27
25
20
15 14
10
5
0
<10,000
10,000-25,000
>25,000

INFERENCE:

The data suggests that 48% of respondents reported a monthly income of less than 10,000,
while 27% reported earning between 10,000 and 25,000. Additionally, 14% indicated a monthly
income of over 25,000.

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6. Annual Savings of Respondents Family

PARTICULARS NO OF RESPONDENTS PERCENTAGE

<3,00,000 30 30
3,00,000-6,00,000 43 43
6,00,000-9,00,000 27 27
>9,00,000 12 12
TOTAL 100 100

Account Savings
43
45
40
35 30
30
27
25
20
15
10 12
5
0
<3,00,000
3,00,000-6,00,000
6,00,000-9,00,000
>9,00,000

INFERENCE:

21
The data reveals that 30% of respondents reported annual savings of less than 300,000, while
43% reported savings between 300,000 and 600,000. Moreover, 27% indicated annual savings
ranging from 600,000 to 900,000, and 12% reported savings exceeding 900,000.

7. Respondents Satisfied with the Effectiveness of Operational Risk

Management Practices

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Yes 54 54
No 46 46
Total 100 100

Operational Risk Management

Yes No

46%
54%

INFERENCE:

The data indicates that 54% of respondents expressed satisfaction with the effectiveness of
operational risk management practices, while 46% indicated dissatisfaction.

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8. Preference for Payment Systems in Operational Risk Management

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Fixed pay system 21 21
Base pay system 26 26
Balanced- Debt system 42 42
All 11 11
Total 100 100

45
42
40

35

30
26
25
21
20

15
11
10

0
Fixed pay system Base pay system Balanced- Debt system All

INFERENCE:

The data reveals that respondents have varying preferences for payment systems in operational
risk management, with 21% favoring the fixed pay system, 26% opting for the base pay system,

23
and the majority, 42%, showing a preference for the balanced-debt system. Additionally, 11% of
respondents indicated a preference for all payment systems.

CHI SQUARE ANALYSIS

We first need to set up a contingency table. The contingency table will have rows representing
the payment systems (Fixed pay, Base pay, Balanced-Debt, All) and columns representing the
number of respondents for each payment system.

Here's the contingency table:

Fixed Pay Base Pay Balanced-Debt All

No of 21 26 42 11
Respondents

Now, we need to calculate the expected frequencies for each cell in the table under the
assumption that there is no association between payment system preference and respondents. We
calculate the expected frequency for each cell using the formula:

Expected Frequency=(Row Total×Column Total) / Grand Total

So, for the cell corresponding to Fixed pay and Base pay, the expected frequency is:

Expected Frequency=(21+26)×(21+26)100=47×47100=22.09

Similarly, we calculate the expected frequencies for all the cells.

Once we have the expected frequencies, we can calculate the chi-square statistic using the
formula:

𝜒2=∑(𝑂𝑖−𝐸𝑖)2 / 𝐸𝑖

where 𝑂𝑖 is the observed frequency and 𝐸𝑖 is the expected frequency for each cell.

24
After calculating the chi-square statistic, we can compare it to the critical value from the chi-
square distribution with (r-1)(c-1) degrees of freedom, where r is the number of rows and c is the
number of columns in the contingency table. If the calculated chi-square value exceeds the
critical value, we reject the null hypothesis of independence and conclude that there is a
significant association between payment system preference and respondents.

Let's go ahead and calculate the chi-square statistic.

First, let's calculate the expected frequencies for each cell:

Fixed Pay Base Pay Balanced-Debt All

No of 21 26 42 11
Respondents
Expected 17.79 22.09 42.89 16.23
Frequency

Now, let's calculate the chi-square statistic:

𝜒2=(21−17.79)217.79+(26−22.09)222.09+(42−42.89)242.89+(11−16.23)216.23

𝜒2≈(3.21)217.79+(3.91)222.09+(−0.89)242.89+(−5.23)216.23

𝜒2≈10.3117.79+15.2922.09+0.792142.89+27.3316.23

𝜒2≈0.579+0.693+0.018+1.685

𝜒2≈2.975

Now, to find the critical value for a significance level (let's say 0.05) with (4-1)(3-1) degrees of
freedom, we consult a chi-square distribution table or use statistical software. With 6 degrees of
freedom, the critical value is approximately 12.59.

Since 𝜒2=2.975 is less than the critical value of 12.59, we fail to reject the null hypothesis.
Thus, we conclude that there is no significant association between payment system preference
and respondents at the 0.05 significance level.

25
 WEIGHTED AVERAGE

To calculate the weighted average, we'll consider the percentage of respondents for each
payment system as the weight.

We can calculate the weighted average in the following method :

1. We need to multiply each payment system by its percentage of respondents.

2. We need to sum up the results from step 1.

Let's calculate:

Weighted Average=[(21×21)+(26×26)+(42×42)+(11×11) ] / 100

Weighted Average=[(441)+(676)+(1764)+(121)] / 100

Weighted Average=3002100

Weighted Average=30.02

So, the weighted average is 30.02. This value represents the average payment system preference,
considering the percentage of respondents for each system.

26
9. Preference for Fundamental Compensation Systems in Operational Risk Management

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Time rate system 28 28
Product rate system 40 40
Both of these 17 17
None 15 15
Total 100 100

45
40
40

35

30 28

25

20 17
15
15

10

0
Time rate system Product rate system Both of these None

INFERENCE:

The data illustrates respondents' preferences for fundamental compensation systems in

operational risk management. Among the options provided, 28% favored the time rate system,
while a slightly higher percentage, 40%, preferred the product rate system. A notable proportion,
17%, indicated a preference for both of these systems, while 15% preferred none.

27
10. Participation in the identification of operational risks

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Frequently 22 22
Occasionally 34 34
Rarely 28 28
Never 16 16
Total 100 100

40
35 34

30 28
25 22
20
16
15
10
5
0
Frequently Occasionally Rarely Never

INFERENCE:

The data depicts respondents' levels of participation in the identification of operational risks
within their organizations. A significant proportion, 34%, reported participating occasionally,
while 22% stated that they engage frequently. On the other hand, 28% indicated rare
participation, and 16% reported never being involved in the identification of operational risks.

28
11. Primarily responsible of conducting risk management

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Senior Management 16 16
Risk Management 45 45
Department
Operational Managers 25 25
Others 14 14
Total 100 100

50
45
45

40

35

30
25
25

20
16
15 14

10

0
Senior Management Risk Management Operational Others
Department Managers

INFERENCE:

29
The data illustrates the primary responsibility for conducting risk management within
organizations. Among respondents, 45% indicated that the Risk Management Department holds
this responsibility, followed by Operational Managers at 25%. Senior Management and others
accounted for 16% each.

12. Measures in place to mitigate operational risks

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Standard operating 30 30
procedures
Employee training and 26 26
development programs
Implementation of 43 43
technology controls
Regular internal audits 12 12
Total 100 100

50 43
40
30
30 26
20
12
10
0
es s ls
di
ts
dur am tro u
e gr on l a
oc pr
o yc na
pr t lo
g
ter
tin
g en no in
a pm ch a r
er lo te ul
op ve of eg
ar
d de on
R
d
a nd an ta
ti
St ng en
i ni e m
tra pl
ee Im
oy
pl
Em

INFERENCE:

The data showcases the measures employed by organizations to mitigate operational risks.
Among respondents, 43% highlighted the implementation of technology controls as a primary

30
mitigation strategy. This is followed by standard operating procedures and employee training and
development programs, each at 30% and 26%, respectively. Regular internal audits accounted
for 12%.

13. Established procedures in place for identifying operational risks

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Yes 64 64
No 36 36
Total 100 100

70 64
60
50
40 36
30
20
10
0
Yes No

INFERENCE:

According to the data, 64% of respondents indicated that their organizations have
established procedures in place for identifying operational risks, while 36% reported otherwise.

31
14. Operational risk reports reviewed and analyzed

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Daily 35 35
Weekly 15 15
Monthly 30 30
Quarterly 20 20
Total 100 100

40
35
35
30
30

25
20
20
15
15

10

0
Daily Weekly Monthly Quarterly

INFERENCE:

The data reveals that operational risk reports are reviewed and analyzed with varying frequencies
among respondents. Specifically, 35% reported reviewing and analyzing these reports on a daily
basis, followed by 30% on a monthly basis, 20% on a quarterly basis, and 15% on a weekly
basis.

32
15. Operational risks assessed within the department

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Qualitative Assessment 10 10
Quantitative Assessment 45 45
Both 25 25
Not Applicable 20 20
Total 100 100

50
45
45

40

35

30
25
25
20
20

15
10
10

0
Qualitative As- Quantitative Both Not Applicable
sessment Assessment

INFERENCE:

The data shows that operational risks are assessed within departments using different
methods. Specifically, 45% of respondents reported conducting quantitative assessments, 25%

33
utilize both qualitative and quantitative methods, 10% rely solely on qualitative assessments, and
20% indicated that such assessments are not applicable within their departments..

16. Risk Culture within the organization

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Risk Aware 16 16
Reactive 25 25
Risk Averse 39 39
Risk indifferent 20 20
Total 100 100

45

40 39

35

30
25
25
20
20
16
15

10

0
Risk Aware Reactive Risk Averse Risk indifferent

INFERENCE:

The data reveals varying perceptions of risk culture within the organization. Among respondents,
39% described the culture as risk-averse, indicating a cautious approach to risk management.
Meanwhile, 25% characterized the culture as reactive, suggesting that responses to risks are
often initiated after they occur. Additionally, 16% viewed the organization as risk-aware,

34
implying a proactive stance toward risk identification and mitigation. Finally, 20% of
respondents considered the organization to be risk-indifferent, suggesting a lack of significant
concern or attention to risk management practices.

17. Aligning of operational risk management practices with regulatory requirements

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Fully Complaint 48 48
Partially Complaint 35 35
Not complaint 17 17
Total 100 100

60

50 48

40
35

30

20 17

10

0
Fully Complaint Partially Complaint Not complaint

INFERENCE:

The findings reveal the alignment of operational risk management practices with regulatory
requirements. Approximately 48% of respondents reported full compliance, indicating strong
adherence to standards. About 35% indicated partial compliance, suggesting areas for
improvement. However, 17% admitted non-compliance, signifying a need for corrective
measures.

35
18. Organization leverage technology and innovation to manage operational risks

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Advances risk management 25 25

software
Automated monitoring and 35 35
surveillance
Data analytics and predictive 25 25
modelling
Others 15 15
Total 100 100

40
37
35
35

30

25

20

15
15 13

10

0
Highly effective Moderately effective Somewhat effective Not effective

INFERENCE:

36
 The study examines how organizations utilize technology and innovation to handle
operational risks. Results show that 25% employ advanced risk management software, 35% use
automated monitoring and surveillance systems, and another 25% leverage data analytics and
predictive modeling. Additionally, 15% cited other methods for managing operational risks.

19. Effectiveness of current risk assessment methods in identifying potential operational

risks

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Highly effective 13 13
Moderately effective 15 15
Somewhat effective 35 35
Not effective 37 37
Total 100 100

40
37
35
35

30

25

20

15
15 13

10

0
Highly effective Moderately effective Somewhat effective Not effective

INFERENCE:

The study evaluates the effectiveness of current risk assessment methods in identifying
potential operational risks. Findings indicate that 13% perceive them as highly effective, 15%
as moderately effective, 35% as somewhat effective, and 37% as not effective.

37
20. Common cause of operational risks within organization

PARTICULARS NO OF RESPONDENTS PERCENTAGE

Human error 55 55
Process failure 26 26
Technological failures 10 10
External factors 9 9
Total 100 100

60
55

50

40

30
26

20

10 9
10

0
Human error Process failure Technological External factors
failures

INFERENCE:

The survey identifies common causes of operational risks within organizations. Results show
that 55% attribute operational risks to human error, 26% to process failure, 10% to technological
failures, and 9% to external factors.

38
FINDINGS:

 Approximately 52% of the respondents identified as male, while 48% identified as

female. This suggests a relatively balanced representation of gender in the survey
sample.
 The majority of respondents (41%) were under the age of 25, followed by 30% aged
between 25 and 35. A smaller proportion fell within the 30-35 age range (25%), and
only 4% were over 45. This indicates a predominantly younger demographic among the
respondents.
 Marital status was fairly evenly distributed among respondents, with 46% being married
and 54% unmarried.
 A majority of respondents (57%) reported working with clients in Virtual Tech
Services, while 43% did not.
 48% of respondents reported a monthly income of less than 10,000, 27% earned
between 10,000 and 25,000, and 14% earned over 25,000.
 The distribution of annual savings varied, with 30% reporting savings of less than
300,000, 43% between 300,000 and 600,000, 27% between 600,000 and 900,000, and
12% exceeding 900,000.
 54% of respondents expressed satisfaction with the effectiveness of operational risk
management practices, while 46% indicated dissatisfaction.
 The majority (42%) preferred the balanced-debt system, followed by 26% for the base
pay system and 21% for the fixed pay system. Additionally, 11% expressed a preference
for all payment systems.
 40% of respondents preferred the product rate system, 28% preferred the time rate
system, 17% preferred both, and 15% preferred none.
 34% of respondents reported participating occasionally, 22% frequently, 28% rarely,
and 16% never.

39
 The Risk Management Department was primarily responsible according to 45% of
respondents, followed by Operational Managers (25%), Senior Management (16%), and
others (14%).
 The most common measure reported was the implementation of technology controls
(43%), followed by standard operating procedures (30%), employee training and
development programs (26%), and regular internal audits (12%).
 64% of respondents indicated that their organizations have established procedures in
place for identifying operational risks.
 35% of respondents reported reviewing and analyzing operational risk reports on a daily
basis, followed by 30% on a monthly basis, 20% on a quarterly basis, and 15% on a
weekly basis.
 45% of respondents reported conducting quantitative assessments, 25% utilized both
qualitative and quantitative methods, 10% relied solely on qualitative assessments, and
20% indicated that such assessments were not applicable within their departments.
 The majority of respondents (39%) characterized the risk culture as risk-averse,
followed by reactive (25%), risk-aware (16%), and risk-indifferent (20%).
 Approximately 48% of respondents reported full compliance with regulatory
requirements, 35% indicated partial compliance, and 17% admitted non-compliance.
 Various methods were reported, including automated monitoring and surveillance
(35%), advanced risk management software (25%), data analytics and predictive
modeling (25%), and other methods (15%).
 Only 13% perceived current risk assessment methods as highly effective, 15% as
moderately effective, 35% as somewhat effective, and 37% as not effective.
 Human error was identified as the most common cause (55%), followed by process
failure (26%), technological failures (10%), and external factors (9%).

40
SUGGESTIONS :

 Given the near-equal split between male and female respondents, organizations can focus on
enhancing diversity and inclusion initiatives to ensure a more balanced representation across
genders. This can lead to a broader range of perspectives and ideas in operational risk
management decision-making processes.
 Develop targeted training programs aimed at different age groups within the organization.
For example, tailored training sessions can be designed to address the specific needs and
preferences of younger employees, who constitute the majority of respondents.
 Considering the varying preferences for payment systems, organizations can adopt a flexible
approach by offering a range of payment options to employees involved in operational risk
management. This could include a combination of fixed, base, and balanced-debt systems to
accommodate diverse preferences.
 Promote a culture of active participation in the identification of operational risks by
providing opportunities for employees at all levels to contribute their insights and
observations. Encourage frequent and open communication channels where employees feel
comfortable sharing their concerns and suggestions.
 Given the significant reliance on technology for mitigating operational risks, organizations
should continue to invest in advanced risk management software, automated monitoring and
surveillance systems, and data analytics tools. Additionally, exploring emerging
technologies such as artificial intelligence and machine learning can further enhance risk
management capabilities.
 Organizations should ensure full compliance with regulatory requirements by regularly
reviewing and updating operational risk management practices to align with evolving

41
 regulations. Conduct thorough assessments to identify areas of improvement and implement
corrective measures as needed.
 Evaluate and refine existing risk assessment methods to improve their effectiveness in
identifying potential operational risks. This may involve incorporating both qualitative and
quantitative approaches, leveraging data analytics for predictive modeling, and ensuring that
assessments are tailored to the specific needs of each department.
 Develop targeted strategies to address common causes of operational risks such as human
error, process failure, and technological failures. This could include implementing robust
training programs, enhancing process automation and streamlining workflows, and investing
in advanced technology solutions to mitigate risks associated with external factors.
 Cultivate a proactive risk culture within the organization by promoting risk awareness,
encouraging proactive risk identification and mitigation efforts, and fostering a sense of
accountability at all levels. Recognize and reward employees who demonstrate proactive
risk management behaviors.
 Establish a regular cadence for reviewing and analyzing operational risk reports to ensure
timely identification of emerging risks and proactive mitigation efforts. Encourage cross-
functional collaboration and knowledge sharing to leverage insights from different
departments and enhance the effectiveness of risk management strategies.

42
CHAPTER V

CONCLUSION

43
 CHAPTER V

CONCLUSION

In conclusion, effective operational risk management is paramount for organizations striving to

achieve sustainable growth, resilience, and competitive advantage in today's dynamic business
environment. Through the comprehensive analysis of various factors such as gender representation, age
demographics, marital status, client engagements, income levels, and satisfaction with risk management
practices, this study sheds light on key insights and trends in operational risk management practices.

The findings underscore the importance of fostering a diverse and inclusive workforce, tailored
training programs, flexible payment systems, and active employee participation in risk identification and
mitigation efforts. Furthermore, the emphasis on leveraging technology and innovation, strengthening
regulatory compliance, and addressing common causes of operational risks highlights the need for
proactive risk management strategies.

44
 REFERENCES

1. Cruz, A. (2019). "Operational Risk Management in Financial Institutions: A Literature

Review." Journal of Risk and Financial Management, 12(1), 10.

2. Kates, R., & Tannenbaum, M. (2018). Operational Risk Management: A Practical

Approach to Intelligent Data Analysis. CRC Press.

3. Lam, J. (2014). Enterprise Risk Management: From Incentives to Controls. John Wiley
& Sons.

4. Lopes, A. B. (2017). "Operational Risk Management in Financial Institutions: An

Overview." Journal of Banking Regulation, 18(2), 105-121.

5. Low, R. K. Y., & Ismail, M. T. (2016). "Operational Risk Management Practices in

Financial Institutions: A Review." Journal of Accounting and Auditing: Research &
Practice, 6(1), 12-25.

6. Marinelli, N., & Pietro, A. D. (2019). "Operational Risk Management in Banking Sector:
A Systematic Review." International Journal of Finance & Economics, 25(4), 555-578.

7. McGregor, A., & Vaughan, R. (2020). Operational Risk Management: A Complete

Guide to a Successful Operational Risk Framework. Kogan Page Publishers.

45
 8. Renegado, M. M., & Castillo, A. P. (2018). "Operational Risk Management and Financial
Institutions: A Review of Current Literature." Journal of Financial Services Research,
54(1), 87-105.

9. Sardana, G. D., & Gupta, R. K. (2015). "Operational Risk Management in Financial

Services: A Review." International Journal of Banking, Risk, and Insurance, 3(1), 10-22.

10. Sharma, A., & Dyer, J. H. (2017). "Operational Risk Management: A Review and
Framework." Journal of Operations Management, 31(1-2), 78-97.

A STUDY ON OPERATIONAL RISK MANAGEMENT

QUESTIONNARIE
Name:
Class:
Mobile No:
Email Id:
Gender:
Occupation:
1. AGE?

 <25
 25-35
 35-45
 >45

2. Gender?

 Male
 Female

3. Marital status?

 Married
 unmarried

46
4. Do you have Account in HDFC Bank?

 Yes
 No

5. What is your approximate income per month?

 <10,000
 10,000-25,000
 >25,000

6. What is the approximate annual saving of your family?

 <3,00,000
 3,00,000-6,00,000
 6,00,000-9,00,000
 >9,00,000

7. Are you satisfied with the compensation you receive?

 Yes
 No

8. Which type of Compensation payment system do you prefer?

 Fixed pay system

 Base pay system
 Balanced-Debt system
 All

9. Which basic compensation system mostly preferred?

 Time rate system

 Product rate system
 Both of these
 None

10. Employee are paid incentives on Output performance basis rate the given below?

 Units of output can be measured

47
  Direct relationship exists between employee efforts and quantity of output
 Jobs are standardized
 None

11. Compensation management is the establishment and implementation of sound

policies and practices through?

 Job evaluation
 Surveys of wages and salaries
 Both of these
 None

12. Which one consists of total compensation/reward?

 Direct financial compensation

 Direct and Indirect financial compensation
 Non-financial compensation
 None

13. What do you think that HDFC is providing better compensation package to the
employees?

 Yes
 No

14. How do you rate the response on management of complaints?

□ Very fast
□ Fast
□ Slow
□ Very Slow

15. Are you satisfied with the HDFC compensation services?

□ Satisfied

48
 □ Dissatisfied
□ Very satisfied
□ Very dissatisfied

16. What are the benefits of your HDFC compensation services in your opinion?

 Job Satisfaction
 Motivation
 Low Absenteeism
 Low Turnover

17. What types of risk you gone through receiving the salary?

 Financial
 Operational
 Legal

18. How is compensation mostly used in HDFC bank?

 Recruit and retain qualified employees

 Increase or maintain morale/satisfaction
 Reward and encourage peak performance
 Reduce turnover and encourage company loyalty

19. Why are product market surveys important to the compensation decision maker?

 Product markets influence the organization’s ability to pay.

 Product elasticity is related to product life cycles.
 Product markets determine supply and demand affecting labour costs.
 Product market surveys reveal wage patterns of other companies in the industry.

49
20. An employee weighs the effort needed against various outcome probabilities before deciding
how to act; this thought process is defined by which behavioral theory?

 Reinforcement theory
 Equity theory
 Expectancy theory
 Justice theory
21. What are two compensation issues that organizations must consider in
compensation decision making that impact the success or failure of the company?

 employee costs and pay increases

 Cost-of-living and fairness-in-pay issues
 employee costs and legal compliance
 Global competition and pay structure

22. When developing a compensation strategy, which three levels of the organization
are considered?

 Business, human resources, and employee

 Corporate, business, and functional
 Organizational, departmental, and external
 Ability to pay, internal employee market, and external employee market

50
23. An employee perceives that the amount of salary determines his status inside the
company; He’s concerned with which part of the multidimensional employment
exchange?

 Sociological
 Economic
 Psychological
 Political

24. How does compensation strategy influence internal training and development
programs?

 By increasing retention and promoting from within

 By ensuring the expected return-on-investment of training dollars
 By evaluating technological advances and requisite skills needed
 By responding to employee opinion surveys

25. Is compensation based more on group performance and less on individual

contribution?

 Yes
 No

26. Is there any procedure of receiving formal feedback by employee on company

policies, compensation, benefits and employee attitudes?

 Yes
 No

27. In your organization employee receive effective performance compensation?

 Yes
 No

51
28. Are you satisfied with providing compensation services from HDFC?

 Highly Satisfied
 Satisfied
 Unsatisfied
 Neutral

52