Business risks can threaten an organization’s bottom line and, long term, its sustainability. Enterprise risk management (ERM ) is designed to mitigate the threat by identifying, assessing and controlling all the multifarious types of risk that could otherwise take your company down.
Know your enemy. This table provides quick summaries for various types of risk with links to more detailed explanations. Below the table you fill find more resources to help you learn about risk management.
Risk categories include:
|pure risk||A category of threat that is beyond human control and has only one possible outcome: loss. Pure risk includes such things as natural disasters, fire or untimely death.|
|speculative risk||A category of risk that can be taken on voluntarily and will either result in a profit or loss. The goal, of course, is always to achieve profit, but a sufficiently compelling opportunity may sharpen an organization's risk appetite.|
|operational risk||The prospect of loss resulting from inadequate or failed procedures, systems or policies. Such threats include employee errors, systems failures, fraud or other criminal activity and any event that disrupts business processes.|
|systemic risk||A category of risk that describes threats to a system, market or economic segment. Markets with interconnected institutions and interdependent operations, such as finance, are most susceptible to systemic risk.|
|total risk||An assessment that identifies all of the risk factors, including potential internal and external threats and liabilities, associated with pursuing a specific plan or project or buying or selling an investment.|
|residual risk||A threat that remains after an organization has implemented security controls to comply with legal requirements. Since residual risk is unknown, many organizations choose to either accept residual risk or transfer it -- for example, by purchasing insurance to transfer the risk to an insurance company.|
|inherent risk||A category of threat that describes potential losses or pitfalls that exist before internal security controls or mitigating factors are implemented. It arises from the organization's human activity or physical environment.|
|unknowable risk||A potential threat that is not known and cannot be quantified or controlled. Events that occur as a result of unknowable risks are known as black swan events.|
|compliance risk||Exposure to legal penalties, financial forfeiture and material loss an organization faces when it fails to act in accordance with industry laws and regulations, internal policies or prescribed best practices.|
|online risk||The vulnerability of an organization's internal resources that arises from the organization using the Internet to conduct business. All organizations that conduct some portion of their business on the Internet experience some form of online risk.|