Operational risk defines the risk that originates from an organizations people and processes. This type of risk accounts for fraudulent activity, mistakes by employees, and even legal risks. Since the implementation of Basel II, creates international standards that regulators can use to mandate capital reserves that banks must set aside to protect against various operational risks that exist for banks. There are three common types of calculations that Basel II calls for in order to calculate operational risk: Basic indicator approach, standardized approach, and the advanced measurement approach. The basic and standardized approaches are relatively straight forward; they calculate capital requirements based on revenue. The basic indicator approach is based on annual revenues while the standardized approach is based on annual revenues by business segments. The advanced measurement technique is a customized approach using a home grown risk measurement platform which adheres to industry standards.
Reference: http://www.mysmp.com/fundamental-analysis/types-of-risk.html