Reputational risk isn't a primary type of operational risk, and why that matters.

Which of the following is NOT considered a primary type of operational risk?

• A. Internal risks
• B. External risks
• C. Reputational risks
• D. Information technology risks

Answer: (C)

In the context of operational risk management, the primary types of operational risk include risks that arise from internal processes, external events, and information technology. Internal risks are those inherent to an organization's operations, such as process failures or staff errors. External risks encompass events outside of an organization’s control that can still impact operations, like natural disasters or fraud. Information technology risks include issues related to technological systems, such as cyber threats or system failures. Reputational risks, while significant, are generally regarded as a consequence or a resultant effect of operational failures rather than a primary type of operational risk itself. Reputational damage often stems from various operational risk incidents, including internal, external, or IT-related issues, but it does not directly fit into the classification of operational risks. Instead, it reflects the potential negative perception stakeholders may form about an organization due to its operational failures. Hence, it can be considered a secondary concern stemming from the primary operational risks. This distinction helps clarify why reputational risks are not categorized among the primary types of operational risk.

Picture this: a manufacturing plant’s ERP hiccups right as orders pour in. Bills don’t go out on time, alarms buzz, and the whole operation grinds to a halt for a while. When stuff like that happens, people start naming risks loud and clear. But not all risks are created equal. In the world of operational risk management, there’s a handy trio that folks usually talk about first: internal risks, external risks, and information technology risks. Reputational risk, as important as it is, usually sits a step back—more like a consequence than a primary type. Let me explain how this all fits together.

What we mean by operational risk (in plain English)

Operational risk is the chance that something goes wrong in how a company runs, not because of a toppled market or a sudden price swing, but because processes, people, or technology stumble. You can think of it as the risk of a broken workflow, a failed control, or a system glitch that interrupts day-to-day operations. It’s the everyday stuff—the stuff that keeps a business humming when things go right, and that unsettles the tune when things go wrong.

The big three you should remember

Here’s the core framework in simple terms:

• Internal risks: These come from within the organization’s own doors—your processes, people, and the way work actually gets done. Slip-ups in procedures, human error during data entry, a poorly designed control that doesn’t cover the corner cases, or gaps in training fall here. It’s not about malice; it’s about how complex work becomes when people juggle a thousand little tasks.

• External risks: These are outside events that bite you regardless of how well you run things inside. Think natural disasters, supplier failures, regulatory changes, fraud from outside actors, or a cyber-criminal targeting your ecosystem. External risks feel like weather—you can’t control it, but you can prepare for it.

• Information technology risks: This one lives where the rubber meets the road in a digital world. It covers cyber threats, software bugs, hardware failures, data integrity, access controls, backup and recovery capabilities, and the reliability of the underlying platforms. In a modern operation, IT risk is often the friction point where people notice if a process isn’t resilient.

So, why isn’t reputational risk in that primary trio?

Reputational risk is the risk of damage to how stakeholders view you—the negative perception that can ripple across customers, investors, employees, and regulators. Why is it not a primary type? Because reputational damage typically arises when things go wrong in the internal, external, or IT domains. A failed process can tarnish trust; a supplier meltdown can spark questions about governance; a cyber incident can erode confidence in security. Put simply, reputational risk is frequently a consequence of the other three. It’s the “aftershocks” story you tell after an operational incident, not the event itself.

Let’s anchor this with a quick mental model

Imagine your operation as a three-laceted machine:

• The front-end processes and people—the way work is designed and executed (internal risks).

• The external world that pushes on your system—suppliers, regulators, market conditions (external risks).

• The digital backbone—the software, networks, data, and tech controls (IT risks).

If one blade falters, the whole machine feels it. Reputational risk shows up when the machine’s performance hits the fan and people notice your reaction, your speed to recover, and how well you learn from it. It’s the narrative your stakeholders share about your competence and your character after stress. It’s real, but it’s often triggered by the primary types.

A practical look at each risk type (with real-world flavor)

• Internal risks: Think of a process that requires manual handoffs, only to discover a miscommunication leads to delays. Or a team that hasn’t updated a critical procedure after a software upgrade. It’s not that people are lazy; it’s that the system rewarded speed over accuracy, or it left edge cases unaddressed. The fix usually involves better process design, clearer roles, smarter training, and stronger controls embedded in the workflow.

• External risks: Picture a key supplier failing to deliver components on time, or a natural event that disrupts logistics. You don’t control these, but you can diversify suppliers, build inventory buffers, and design contingency plans. You can also build stronger vendor oversight, so those external shocks don’t cascade into your own operations.

• IT risks: This is where modern work really lives. A malware incident, a misconfigured firewall, or a data breach can ripple through every process that relies on digital systems. IT risk management leans on robust cybersecurity practices, resilient architecture, regular backups, incident response playbooks, and ongoing testing. It’s less glamorous and more about staying calm when an alert blinks.

A few moves that make a real difference

You don’t need a heavy-smoothed doctrine to start doing better. Here are some practical steps that align with the three primary risk types:

• For internal risks:

• Map critical processes end-to-end and identify where failures most often occur.

• Design controls into the workflow, not as afterthoughts.

• Invest in training and clear documentation so people know what to do when the unexpected happens.

• Use regular reviews and independent checks to catch drift before it becomes a problem.

• For external risks:

• Build a supplier risk framework: rating, monitoring, and contingency contracts.

• Create disaster recovery and business continuity plans that are tested, not just filed away.

• Maintain a horizon scan—keep an eye on regulatory shifts, market changes, or geopolitical developments that could impact operations.

• For IT risks:

• Adopt a layered defense: identity and access controls, encryption, anomaly detection, and rapid patch management.

• Regular backup and tested recovery procedures so you can bounce back quickly.

• Run tabletop exercises to practice responding to incidents—people, not just systems, matter here.

How frameworks help without turning risk into a museum exhibit

You’ll hear about established frameworks without being overwhelmed by jargon. A couple to know:

• ISO 31000: This is the big-picture guide to risk management—principles, a framework, and a process you can apply across types of risk. It’s about making risk thinking a routine part of decision-making.

• COSO: This framework is especially popular in organizations focused on governance, risk, and compliance. It helps link risk to objectives, control activities, information, and monitoring.

• NIST and ISO 27001 (for IT): If you’re into cybersecurity or data-heavy environments, these standards offer concrete controls and a cycle for improving security over time.

The point is not to memorize a closet full of rules, but to internalize a way of thinking: identify the three primary risk strands, map where they bite your operation, and then design practical controls that stay with the day-to-day work.

A simple, repeatable way to think about risk in real life

Here’s a lightweight mental model you can carry around:

• Step 1: Identify where work could stall (internal), where pressure comes from outside (external), and where tech might fail (IT).

• Step 2: Rate how likely it is and how big the impact would be.

• Step 3: Put your best guards in place—automation where possible, redundancy where it matters, and clear playbooks for people to follow.

• Step 4: Test and learn. Simulate incidents, review what happened, and tighten the process.

It’s not about chasing perfect compliance; it’s about building resilience. Resilience is what helps you absorb a shock, recover quickly, and keep trust intact with customers and partners.

Reputational risk: how it sneaks in and why it matters

Reputational risk deserves a line of its own because it’s easy to underestimate. If a customer-facing failure triggers a flood of complaints, or if a data breach becomes public, the reputational fallout can be swift and painful. Yet, it’s not a separate dragon to slay; it’s the echo of the primary operational risks. When internal processes fail, or external events disrupt you, or IT security falters, the way you respond shapes reputation. Honest communication, visible steps to fix issues, and a demonstrated commitment to learning can soften reputational blows. It’s the difference between a stumble that’s quickly recovered and a misstep that spirals into a lasting stain.

Practical takeaways you can apply today

• Keep it tangible: focus first on the three primary risk types and resist the impulse to chase every possible risk scenario. Prioritize what actually disrupts your operations.

• Build and test: don’t set up fancy dashboards and forget them. Test recovery plans, rehearse incident responses, and refine controls based on what you learn.

• Ground risk in action: link risk management to real business objectives. If you can point to how a control supports a critical process or protects a key customer segment, you’ll keep risk work alive and useful.

• Use familiar terms: talk about processes, suppliers, and systems, not abstract risk categories. People relate to concrete examples more than taxonomy.

A note on culture and the human side

Risk management isn’t a checkbox exercise; it’s a culture thing. When teams talk openly about where they’re uncertain, when leaders model calm responses to disruptions, and when learning is celebrated rather than punished, risk management becomes a natural part of doing business. That culture helps prevent small issues from turning into big headlines and keeps operations smooth even when the going gets rough.

A glance at the real-world toolkit

If you’re curious about what professionals lean on, here are a few practical touchstones you’ll see in the field:

• Process mapping tools (Visio, Lucidchart) to visualize workflows.

• Risk registers and incident databases to track what happens, why, and what was done.

• Cybersecurity platforms and monitoring suites (like Splunk, CrowdStrike, or Microsoft Defender) for IT risk visibility.

• Audit and compliance tooling that ties risk controls to objectives and evidence.

The bottom line

Operational risk isn’t some abstract concept to file away in a dusty notebook. It’s a practical, day-to-day discipline that helps organizations run more predictably. Internal risks, external risks, and IT risks form the core of this discipline because they’re the engines that drive most operational disruption. Reputational risk matters, but it’s the resonance you hear after a disruption—how you respond, how quickly you fix things, and how you learn from the whole experience.

If you take away one idea from this, let it be this: build your risk approach around the three primary types, keep the focus on concrete processes and technologies, and cultivate a mindset of resilience. The rest—frameworks, controls, and even reputational carefulness—will fall into place because you’ve anchored your practice in real-world work. And that makes risk management not just doable, but genuinely valuable to everyone who depends on the operation to perform, day in and day out.