Recognizing Risk Categories
Experts mention that controllable risks exist through every organization, through its vocation, strategy, personnel, and other resources, communication, and general operational practices. In this context, risk management includes not only the problem of ethical values but also the identification and reduction of risks. David Johnson Cane Bay can ensure your company excels in all these areas.
Categories of risk management
Here is an extensive list of all the risk management categories.
- Financial risks (foreign exchange, operational, market, credit, interest rate) carry three separate risks. There is a financial risk that covers changes in interest rates, foreign exchange, credit, the value of the financial instrument and liquidity. An operational risk that deals with technical defects, accidents, human errors, and the loss of key employees. Lastly, a market risk that manages all changes in competition, in the number of products sold per customer, and loss of market share.
- Risk related to government regulation – Change in control, management, national and international legislation
- Economic risk – Changes in macroeconomics
- Raw materials risk – Fluctuations in commodity factors
- Environmental risk – Incidents in the environment, environmental laws, and regulations
- Political risk – Conduct of business in an international context
- Risk of illiquidity – Difficulties in meeting commitments and deadlines
- Technology risk – Rapid changes in technology
- Risk related to climatic conditions – Severe climatic conditions, unfavorable to the activity of the company
- Supplier risk – Dependence on critical suppliers or unsafe suppliers
- Seasonality risks deal with seasonal patterns
- Distribution risk covers changes in distribution channels
It is the responsibility of senior management to monitor risk management policies regularly and to approve their limits. The administration must also accept the overall approach to risk-taking. The risk management program must work in conjunction with the internal audit department or the finance department of the company because of their knowledge of the company’s channels.
Implementing risk management
Risk management involves three processes: risk assessment, formalization, and operation. These processes form part of the backbone for a rigorous approach to estimating and reporting risks that could compromise the achievement of an organization’s objectives. This approach presents opportunities to exploit potential competitive advantages. If processes identify risks, then they should be evaluated.