Type of Risk
Risk Management is an essential element of a strong security system. Learn how to build a strong risk management and compliance plan in several areas. Get information on risk and vulnerability assessment, security analytics and vulnerability management. Avoidance of risk is a commonly used strategy by businesses to, well, avoid risk. While the strategy is rather vague, avoidance of risk includes things like opting not to purchase a new factory if the risks to the business outweigh the benefits (which, presumably, the company has determined through cost benefit analysis).
The risk management process is divided as follows:
- Risk management planning: establishing scope, detailing management activities for the project
- Identify the risks: define the main risks and their characteristics, whether they are threats or opportunities
- Qualitative risk analysis: analyze the exposure to risk to prioritize those that will be the subject of analysis, an additional action or contingency plan
- Quantitative risk analysis: perform the numerical analysis of the effect of the risks identified in the general objectives of the company
- Risk response planning: Creating options and actions to increase opportunities and reduce threats to project or business objectives
- Monitoring and controlling risks: controlling risks during the project life cycle.
Types of Risk Management are :
- Longevity Risk
First, it clearly demonstrates that a discussion of investment risk is ultimately about people, not abstract returns. Second, longevity risk is interesting because it clearly demonstrates how different parties view the same risk
- Inflation Risk
Inflation is the increase in the cost of goods and services in an economy relative to the currency. When we experience inflation in the United States, the same number of dollars will buy less in the market that it did in the past.
- Sequence of Returns Risk
Often investors focus on average returns. This can be the average of a portfolio allocation or their own experiences in the past. The challenge with a plan based on an average return is that even if it is achieved, there can be wide variation from year to year and the order in which returns occur can affect your investment experience.
- Interest Rate Risk
Changes in interest rates can affect your portfolio in many ways. When interest rates go up, for example, fixed income items such as bonds may no longer be as competitive and may decrease in value. Even equities may experience the effect of the changing interest rates on the overall economy or a specific business. Think of credit as the fuel that drives economic activity. Interest is the cost of credit.
- Liquidity Risk
The risk that a company or bank may be unable to meet short term financial demands. This usually occurs due to the inability to convert a security or hard asset to cash without a loss of capital and/or income in the process.
- Market Risk
Market risk is what most investors imagine when they think of risk in general. It’s the possibility that the value of your investment can decrease
- Opportunity Risk
The likelihood that a loss will be incurred by committing resources to one opportunity, preventing the pursuit of better opportunities in the future.
- Tax Risk
Tax risk is the risk that companies may be paying or accounting for an incorrect amount of tax (including both income and indirect taxes), or that the tax positions a company adopts are out of step with the tax risk appetite that the directors have authorised or believe is prudent.
Benefits of risk management include :
- Creates a safe and secure work environment for all staff and customers.
- Increases the stability of business operations while also decreasing legal liability.
- Provides protection from events that are detrimental to both the company and the environment.
- Protects all involved people and assets from potential harm.
- Helps establish the organization’s insurance needs in order to save on unnecessary premiums.
The risk management matrix will document the following items:
- Risk and Consequences – Brainstorm risks before you beginning your project and continue adding to your risk management plan as the project moves throughout it is life cycle. What risks can be associated with this project? Will the risks affect the schedule, resourcing or budget?
- Probability – the table should contain a probability of the risk occurring. This can be a percentage or a number.
- Impact – what is the impact to the project if the risk should occur? Build a scale appropriate for the project – smaller projects can use a simple impact of 1-5 (minimal to major) whereas larger projects may want a more formal scale.
- Priority – (Probability * Impact) will give you an idea of the priority of the risk. Higher priority items should be mitigated and planned for before lower priority items.
- Mitigation Response – a brief overview of mitigation steps to eliminate or reduce the risk.