C2-Categories of risk

Identifying Risk
Industry specific nature of many business risks

Identifying Risks
Management must be aware of potential risks
They change as the business changes
So this stage is particularly important for those in turbulent environments
Uncertainty can come from any of the political, economic, natural, sociodemographic or technological contexts in which the organisation operates.

Categories of risk
1. Strategic risks
Refers to the positioning of the company in its environment.
Typically affect the whole of an organisation and so are managed at board
level
2. Operational risks
Refers to potential losses arising from the normal business operations.
Are managed at risk management level and can be managed and mitigated
by internal controls.
3. Financial risks
= are those arising from a range of financial measures.
The most common financial risks are those arising from financial structure
(gearing), interest rate risk, liquidity
4. Business risks
The risk that the business won't meet its objectives.
If the company operates in a rapidly changing industry, it probably faces
significant business risk.
5. Reputation risk
Any kind of deterioration in the way in which the organisation is perceived

When the disappointed stakeholder has contractual power over the

organisation, the cost of the reputation risk may be material.
6. Market risk
Those arising from any of the markets that a company operates in, such as
where the business gets its inputs, where it sells its products and where it
gets its finance/capital
Market risk reflects interest rate risk, currency risk, and other price risks
7. Entrepreneurial risk
The risk associated with any new business venture
In Ansoff terms, it is expressed the unknowns of the market reception
It also refers to the skills of the entrepreneurs themselves.
Entrepreneurial risk is necessary because it is from taking these risks that
business opportunities arise.
8. Credit risk
Credit risk is the possibility of losses due to non-payment by creditors.
9. Legal, or litigation risk
arises from the possibility of legal action being taken against an
organisation
10.Technology risk
arises from the possibility that technological change will occur
11.Environmental risk
arises from changes to the environment over which an organisation has no
direct control,
e.g. global warming, or occurrences for which the organisation might be
responsible,
e.g. oil spillages and other pollution.
12.Business probity risk
related to the governance and ethics of the organisation.
13.Derivatives risk

due to the use of underperforming financial instruments

14.Fiscal risks
risk that the new taxes and limits on expenses allowable for taxation
purposes will change.
15.Health and safety risk
Health and safety risks include loss of employees' time because of injury and
the risks of having to pay compensation or legal costs because of breaches.
Health and safety risks can arise from:
Lack of health and safety policy
Lack of emergency procedures
16.Liquidity risk
If a business suddenly finds that it is unable to cover or renew its short-term
liabilities, there will be a danger of insolvency if it cannot pay its debts
However current liabilities are often a cheap method of finance (trade
payables do not usually carry an interest cost).
Businesses may therefore consider that, in the interest of higher profits, it is
worth accepting some risk of insolvency by increasing current liabilities,
taking the maximum credit possible from suppliers.

Industry specific nature of many business risks

Industry-specific risks are the risks of unexpected changes to a business's cash
flows from events or changing circumstances in the industry or sector in which the
business operates.

Unexpected changes can arise for example due to:

new technology
a change in the law
a rise or fall in the price of a key commodity.