With potentially hundreds of risks that can be identified, dealing with them may seem daunting. Let’s break it down into more manageable chunks and start by categorizing various risks. Risks could be grouped in any of a number of ways: external and internal; controllable and uncontrollable; or insurable and uninsurable. Four alternative types include:
- Market and price risk. There is a risk that an increase in product or service offering supply or an aggressive price reduction from competitors will force lower prices and consequently reduce profits.
- Credit risk. The threat that customers will fail to pay for their purchases.
- Operational risk. The potential for loss resulting from inadequate or failed internal strategy, processes, people and technology, or from external events.
- Legal risk. The financial risk from insufficient net positive cash flow or from exhausted capital-equity raising or cash-borrowing capability. The risk from litigation or regulatory authority penalties.
Now’s a good time to reassess your firm’s level of risk tolerance. Read the Knowledge Exchange post: Developing a risk assessment map.