A Framework for Classifying the Operational Risks of Outsourcing - Integrating Risks from Systems, Processes, People and External Events within the Banking Industry

Operational risk and outsourcing are two major topics on today's agenda of top executives, especially in the banking industry. This paper introduces a framework to classify operational risk in outsourcing in a way that generates quantifiable output for measurement purposes. The authors developed a matrix system that deploys a catalogue of sources of risk and a mutually exclusive yet exhaustive system of measurable impact areas. It is shown that this framework adds to the understanding of operational risk as its application enhances transparency through the transformation of often vague risk descriptions to quantifiable risk indicators. An overview of the current IS literature on risks in outsourcing combined with a critical assessments of deficiencies for transparent risk classification serves as a input for the classification process.