Thesis
CHAPTER TWO LITERATURE REVIEW
2.0 INTRODUCTION
The objectives of this chapter are to review the existing literature and provide an overview of operational risk in general and in banking industry in particular. The chapter also seeks to show what other researchers have explored in relation to operational risk management and how it can be a source of competitive advantage.
2.1. DEFINITION OF CONCEPTS
2.1.1 Risk
Organizations today operate in a dynamic and risky environment and as such they are vulnerable to all kinds of risks in the marketplace, thus making risk an important component of a company’s investment strategy. Oxelheim and Wihlborg (1997) define risk as a measure of the timing and magnitude of unanticipated changes, which is evaluated relative to expected changes in variables. These anticipated changes are measured by the expected change, which is normally a result of forecasting.
Tchankova (2002) stated that risk is an inherent part of business and public life. Dynamic market relations continuously increase the uncertainty of the environment where business and public organizations work. 2.1.2 Risk Management in Banking
Risk management is described as the performance of activities designed to minimise the negative impact (cost) of uncertainty (risk) regarding possible losses (Schmidt and Roth, 1990).
Redja (2000) also defines risk management as a systematic process for the identification and evaluation of pure loss exposure faced by an organization or an individual, and for the selection and implementation of the most appropriate techniques for treating such exposure. The process involves: identification, measurement, and management of the risk. Bessis (2010) also adds that in addition to it being a process, risk management also involves a set of tool and models for measuring and controlling risk. The objectives of risk management include to: minimise foreign exchange losses,
2.0 INTRODUCTION
The objectives of this chapter are to review the existing literature and provide an overview of operational risk in general and in banking industry in particular. The chapter also seeks to show what other researchers have explored in relation to operational risk management and how it can be a source of competitive advantage.
2.1. DEFINITION OF CONCEPTS
2.1.1 Risk
Organizations today operate in a dynamic and risky environment and as such they are vulnerable to all kinds of risks in the marketplace, thus making risk an important component of a company’s investment strategy. Oxelheim and Wihlborg (1997) define risk as a measure of the timing and magnitude of unanticipated changes, which is evaluated relative to expected changes in variables. These anticipated changes are measured by the expected change, which is normally a result of forecasting.
Tchankova (2002) stated that risk is an inherent part of business and public life. Dynamic market relations continuously increase the uncertainty of the environment where business and public organizations work. 2.1.2 Risk Management in Banking
Risk management is described as the performance of activities designed to minimise the negative impact (cost) of uncertainty (risk) regarding possible losses (Schmidt and Roth, 1990).
Redja (2000) also defines risk management as a systematic process for the identification and evaluation of pure loss exposure faced by an organization or an individual, and for the selection and implementation of the most appropriate techniques for treating such exposure. The process involves: identification, measurement, and management of the risk. Bessis (2010) also adds that in addition to it being a process, risk management also involves a set of tool and models for measuring and controlling risk. The objectives of risk management include to: minimise foreign exchange losses,
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