Saturday, August 4, 2012

Types of Risk for Risk Identification & Risk Analysis

Risk identification

Risk identification is the first step in risk analysis. Risk identification requires knowledge of types of risk that can affect organizational performance.

Types of Risk

Market Risk

Risk that PESTEL (political, economic, social, technological, environmental, legal) factors that affects the market will change in direction other than required by the business.

Market risk is a broad term; it includes interest rate risk, foreign exchange risk, stock market risk and product risk etc.

Interest Rate Risk

Risk that interest rate will move adversely against organization wish.

Foreign Exchange Risk

Risk that foreign exchange rate will move adversely against organization wish.

Translation Risk

Risk that value of foreign investment will reduce due to reduction in foreign currency rate.

Transaction Risk

Risk that proceeds involved in foreign transaction will result in foreign exchange loss on conversion into home currency.

Economic Exposure Risk

Risk that organization will suffer losses due to depreciation of home currency in international market. This risk is relevant to all organizations regardless of having foreign transaction or investment or not.

 

Technological Risk

Risk that organization will fail to keep itself up to date with technological change.

 

Information Technology Risk

Risk that organization will fail to secure its useful and confidential information. It includes

Hacker Risk

Risk that hacker attacks will steal, copy, modify, and delete organizational data.

Data Protection Risk

Risk that organization will fail to make backups and retrieve information when needed.

Denial of Service Attack

Risk that organizational website will receive traffic from rivals to cause system to respond slowly.

 

Intellectual Property Risk

Risk that organizational copyrights, patents and trademarks are violated by other organizations.

 

Political Risk

Risk that political conditions will change against the wish of organization.

 

Catastrophe Risk

Risk that earthquakes, floods and storms will damage organizational assets.

 

Liquidity Risk

Risk that organization will unable to pay supplier within agreed credit terms.

As a result, supplier may charge higher prices. In serious cases, suppliers may deny delivery of further goods or services.

 

Credit Risk

Risk that supplier may deny giving further credit. This will lead to reduction in working capital available to finance organizational activities.

 

Financial Reporting Risk

Risk that financial statements contain material misstatements. As a result, Auditor202 will give qualified opinion.

 

Legal Risk

Risk that organization will fail to comply with legal requirements.

 

Fraud Risk

Risk that organization will be deceived intentionally from inside or outside the organization.

 

Human Resource Risk

Risk that, organization will lose its key employees.

Organization cannot control the departure of employees. Human resource is autonomous entity. They cannot be treated like other assets such as property, plant and equipment possessed by the organization.

Human resource is subject to human error and psychological factors. It makes this risk very important.

 

Customer Risk

Risk that customer will move toward substitute products. This may arise due to poor product quality and customer service.

 

Environmental Risk

Risk that organizational activities will harm environment. It will result in legal action, penalties, and reputation loss in the society.

This risk is strategic in nature because it results from pursuing specific strategy.

 

Social & Cultural Risk

Risk that organization activities will be against the social and cultural norms. As a result, society may protest against the organization and abandon consuming its product.

 

Reputation Risk

Risk that organizational reputation will be lost. This risk depends on materialization of all other risks.

Loss of reputation leads to adverse impacts on almost every aspects of performance of the organization.

There can be many other possible risks.