 A risk is an uncertain event which may occur

in the future
 A risk may prevent or delay the achievement
of an organization’s or units objectives or
goals
 A risk is not certain – Its likelihood can only
be estimated
 Not all risk is bad, some level of risk must be
taken in order to progress / prevent
stagnation.
 Systematic risk refers to the risk inherent to
the entire market or market segment.
Systematic risk, also known as
―undiversifiable risk,‖ ―volatility‖ or ―market
risk,‖ affects the overall market, not just a
particular stock or industry. This type of risk
is both unpredictable and impossible to
completely avoid. It cannot be mitigated
through diversification, only through hedging
or by using the correct asset allocation
strategy.
Unsystematic risk is unique to a
specific company or industry. Also
known as ―nonsystematic risk,‖
"specific risk," "diversifiable risk" or
"residual risk," in the context of an
investment portfolio, unsystematic
risk can be reduced through
diversification.
 Investment Risk
 Business Risk
 Market Risk
 Operations Risk
 Financial Risk
 Business Risk
 Financial Risk
 Liquidity Risk
 Default Risk
 Interest Rate Risk
 Management Risk
 Purchasing Power Risk
 Business risk is the exposure a company or
organization has to factor(s) that will lower its
profits or lead it to fail.
 Anything that threatens a company's ability to
meet its target or achieve its financial goals is
called business risk.
 These risks come from a variety of sources,
so it's not always the company head or a
manager who's to blame. Instead, the risks
may come from other sources within the firm
or they may be external—from regulations to
the overall economy.
 Financial risk refers to a company's
ability to manage its debt and
financial leverage.
 Financial risk relates to how a
company uses its financial leverage
and manages its debt load.
 With financial risk, there is a concern
that a company may default on its
debt payments.
 Liquidity is the ability of a firm,
company, or even an individual to pay
its debts without suffering
catastrophic losses. Conversely,
liquidity risk stems from the lack of
marketability of an investment that
can't be bought or sold quickly
enough to prevent or minimize a loss.
 Default risk is the chance that a company or
individual will be unable to make the
required payments on their debt obligation.
 Lenders and investors are exposed to
default risk in virtually all forms of credit
extensions.
 A higher level of risk leads to a higher
required return, and in turn, a higher
interest rate.
 Interest rate risk is the potential for
investment losses that result from a
change in interest rates.
 If interest rates rise, for instance, the
value of a bond or other fixed-income
investment will decline. The change in
a bond's price given a change in
interest rates is known as its duration.
 Management risk is the risk — financial,
ethical or otherwise — associated with
ineffective, destructive or underperforming
management.
 Management risk can be a factor for
investors holding stock in a company.
 Management risk can also refer to the risks
associated with the management of an
investment fund.
 Inflationrisk, also called
purchasing power risk, is the
chance that the cash flows from
an investment won't be worth as
much in the future because of
changes in purchasing power due
to inflation.
 Product Risk
1. Complexity
2. Obsolescence
3. Research and Development
4. Packaging Risk
5. Delivery of Warranties
 Competitor Risk
1. Pricing Strategy
2. Market Share
3. Market Strategy
 Process Stoppage
 Health and Safety
 After Sales Service Failure
 Environmental
 Technological Obsolescence
 Integrity
◦ Management Fraud
◦ Employee Fraud
◦ Illegal Acts
 Interest Rate Volatility
 Foreign Currency
 Liquidity
 Derivative
 Viability
 Regulatory Change
 Reputation
 Political
 Regulatory and Legal
 Shareholder’s Relations
 Credit Rating
 Capital Availability
 Business Interruptions
It is a process to:
 Identify all relevant risks
 Assess / rank those risks
 Address the risks in order of priority
 Monitor risks & report on their management
 Promotes good management.
 May be a legal requirement depending upon
industry or sector like banks.
 Resources available are limited – therefore a
focused response to Risk Management is
needed
 Mission Define Purpose

 Strategy High level Plan

 Goals Unit Specific Targets

1. Risk Identification – what are the
threats and uncertainties associated
with my organization’s or units
objectives?
• Separate out the risk into its cause &
possible effect
•Be concise & clear
• Do not concentrate on symptoms only
 Objective based Risk
 Scenario based Risk
 Taxanomy based Risk
 Common Risk Checking
 Risk Charting
2. Assess the risk’s
impact and likelihood.

3. Prioritize the risks.

Challenge & Evaluate Controls
 Control: Policy, action, procedure
or process designed to prevent
risk or to limit its impact
 Do they work, are they effective?
 Residual Risk only should be
measured
Take Action!
For serious risks where controls
are
 A) Weak
 B) Absent
For risks where the Risk Appetite
is exceeded
Examine Cost vs. Benefit
Types of Action
A)Tolerate /Retention
B)Treat
B.1 Avoidance
B.2 Sharing
B.3 Reduction
C)Substitute
D)Terminate
Monitor & Report
 Use a standard format for capturing risk data e.g.
a ―Risk Register‖

 Review all risks at least annually

 Serious risks to be reviewed more often

depending on circumstances

 Report on risk to senior management / Board

 Make Risk Register available to stakeholders to

show good governance
 Limitations of scope

 Lack of top management support

 Did not engage all stakeholders

 Failure to share information

 RM not embedded within planning &

management system