As a Scope of Risk Assessment, we have to determine all type of risk. It usually includes External
Risk such as Customer needs, Competitors, Financial Market, Economy....and Internal Risk such as
Financial Risk, IT Risk, Intergrity Risk, Reputation Risk....
Please find all type of risk that it can occur during your Company's Operation -
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I. Environment Risk
Environment risk arises when there are external forces that can affect a company’s performance, or make its choices regarding its strategies, operations, customer and supplier relationships, organizational structure or financing obsolete or ineffective. These forces are outside management’s ability to control.
a. Competitor Risk
Major competitors or new entrants to the market take actions to establish and sustain competitive advantage over the company or even threaten its ability to survive.
b. Customer Wants Risk
The company is not aware that customer needs and wants change. Such needs and wants may apply to desired quality, willingness to pay and/or speed of execution.
c. Technological Innovation Risk
The organization is not leveraging advancements in technology in its business model to achieve or sustain competitive advantage or is exposed to the actions of competitors or substitutes that do leverage technology to attain superior quality, cost and/or time performance in their products, services and processes.
d. Sensitivity Risk
Sensitivity risk results when management commits the company's resources and expected cash flows from future operations to such an extent that it reduces the company's tolerance for (or ability to withstand) changes in environmental forces that are totally beyond its control.
e. Shareholder Expectations Risk
The risk of failing to manage shareholder expectations, resulting in a decline in investor confidence that may impair the company's ability to efficiently raise capital and reduce stock evaluations over time.
f. Capital Availability Risk
The company does not have efficient access to the capital it needs to fuel its growth, execute its strategies, and generate future financial returns.
g. Sovereign/Political Risk
The risk of adverse consequences through political actions in a country in which a company has made significant investments (a major project, for example), is dependent on a significant volume of business or has entered into an agreement with a counter party subject to the laws of that country.
h. Legal Risk
The risk that a company's transactions, contractual agreements and specific strategies and activities are not enforceable under applicable law.
i. Regulatory Risk
Changes in regulations and actions by national or local regulators can result in increased competitive pressures and significantly affect a company's ability to efficiently conduct business.
j. Industry Risk
The risk that the industry will lose its attractiveness due to changes in the key factors for competitive success within the industry, capabilities of existing and potential competitors, and company’s strengths and weaknesses relative to competitors.
k. Financial Markets Risk
Financial markets risk is defined as exposure to changes in the earnings capacity or economic value of the firm as a result of changes in financial market variables (e.g., currency rates). These changes affect income, expense or balance sheet values.
l. Catastrophic Loss Risk
The inability to sustain operations, provide essential products and services, or recover operating costs as a result of a major disaster.
II. Process Risk
The risk that business processes are not clearly defined, are poorly aligned with business objectives and strategies, do not satisfy customer needs, dilute shareholder wealth, or expose assets to misappropriation or misuse.
a. Governance Risk
The risk that the organization’s governance processes do not comply with legal requirements or stakeholder expectations and that the board of directors fails to provide adequate monitoring and oversight of executive management activities.
1. Organizational Culture Risk
The organization’s culture does not encourage managers to realistically portray the potential outcomes of transactions, deals, investments and projects and understand and portray the full picture for decision makers. The organization experiences dysfunctional behavior because managers are either risk averse or incented to take risks beyond the organization’s risk appetite.
2. Ethical Behavior Risk
The organization, through its actions or inaction, demonstrates that it is not committed to ethical and responsible business behavior.
3. Board Effectiveness Risk
The board does not constructively engage management and provide anticipatory, proactive and interactive oversight of the company’s activities and affairs, with integrity, vision, common sense and unquestioned independence.
4. Succession Planning Risk
Leadership talent within the organization is not sufficiently developed to provide for orderly succession in the future.
B. Reputation Risk
The risk of loss of brand image such that the company will be unable to operate in the marketplace.
1. Image and Branding Risk
The risk that a company may lose customers, key employees or its ability to compete, due to perceptions that it does not deal fairly with customers, suppliers and stakeholders, or know how to manage its business.
2. Stakeholder Relations Risk
A decline in investor confidence may impair a company's ability to efficiently raise capital. The company will not have the same efficient access as competitors to the capital it needs to fuel its growth, execute its strategies, and generate future financial returns.
C. Operations Risk
The risk that operations are inefficient and ineffective in satisfying customers and achieving the company’s quality cost and time objectives.
1. Customer Satisfaction Risk
The company's processes do not consistently meet or exceed customer expectations due to a lack of focus on the customer.
2. Human Resources Risk
The personnel responsible for managing and controlling an organization or a business process do not possess the requisite knowledge, skills and experience needed to ensure that critical business objectives are achieved and significant business risks are reduced to an acceptable level.
3. Knowledge Capital Risk
Processes for capturing and institutionalizing learning across the organization are either nonexistent or ineffective, resulting in slow response time, high costs, repeated mistakes, slow competence development, constraints on growth and unmotivated employees.
4. Product Development Risk
The productivity of the product development process is significantly less than more innovative competitors who are able to achieve higher productivity through a stronger customer focus, concentrating focused resources and faster cycle time.
5. Efficiency Risk
The process is inefficient in satisfying valid customer requirements resulting in higher than competitive costs.
6. Capacity Risk
The effective productive capacity of the plant is not fully utilized, resulting in spreading fixed costs over fewer units and creating higher unit costs and lower unit margins or the capacity does not fulfill customer needs resulting in a loss of business.
7. Scalability Risk
The inability to operate differently and more efficiently at larger volumes or amortize costs over greater sales volume, resulting in diseconomies of scale that threaten the firm’s ability to generate competitive profit margins.
8. Performance Gap Risk
A business process does not perform at a world-class level because the practices designed into the process are inferior.
9. Cycle Time Risk
Elapsed time between the start and completion of a business process (or activity within a process) is too long because of redundant, unnecessary and irrelevant steps.
10. Sourcing Risk
The fewer the alternative sources of energy, metals and other key commodities and raw materials used in a company's operations, the greater the risks of shortages and higher costs. These risks can significantly affect the company's capability to provide competitively priced products and services to customers at the time they are wanted.
11. Channel Effectiveness Risk
Poorly performing or positioned distribution channels threaten the organization’s capacity to access current and potential customers/end users effectively and efficiently.
12. Partnering Risk
Inefficient or ineffective alliance, joint venture, affiliate and other external relationships affect the organization’s capability to compete. These uncertainties arise due to choosing the wrong partner, poor execution, receiving more value than is given (ultimately resulting in loss of a partner) and failing to capitalize on partnering opportunities.
13. Compliance Risk
As a result of a flaw in design or operation or due to human error, oversight or indifference, the company's processes do not meet customer requirements the first time or do not comply with prescribed procedures and policies. Compliance risk can also result in failure to conform with laws and regulations at the international, country, state and local level that apply to a business process.
14. Business Interruption Risk
The company's capability to continue critical operations and processes may be highly dependent on availability of certain raw materials, information technologies, skilled labor and other resources.
15. Product/Service Failure Risk
The company's operations create risk of customers receiving faulty or nonperforming products or services.
16. Environmental Risk
Environmental risks expose companies to potentially enormous liabilities. The exposure is twofold -- (1) liability to third parties for bodily injury or property damage caused by the pollution, and (2) liability to governments or third parties for the cost of removing pollutants plus severe punitive damages.
17. Health and Safety Risk
These risks expose a company to potentially significant workers' compensation liabilities, financial loss, and negative publicity. Firms and their managers could find themselves criminally liable for failure to provide a safe working environment for their employees.
18. Trademark/Brand Erosion Risk
The risk that a trademark or brand will lose its value. A trademark is a word, symbol or device -- or any combination of these -- that identifies a product or service and distinguishes that product or service from the products or services of competitors.
D. Empowerment Risk
The risk that managers and employees are not properly lead, do not know what to do (or how to do it) when they need to do it, exceed the boundaries of their defined authorities, do not have the resources, training and tools necessary to make effective decisions or are given incentives to do the wrong thing.
1. Leadership Risk
The risk that the people responsible for the important business processes do not or cannot provide the leadership, vision, and support necessary to help employees be effective and successful in their jobs.2. Authority/Limit Risk
The risk that people either make decisions or take actions that are not within their explicit responsibility or control or fail to take responsibility for those things for which they are accountable. Failure to establish or enforce limits on personnel actions may cause employees to commit unauthorized, illegal or unethical acts or assume unauthorized or unacceptable business risks.
3. Outsourcing Risk
Outside service providers do not act within their defined limits of authority and do not perform in a manner consistent with the values, strategies and objectives of the company.
4. Performance Incentives Risk
Unrealistic, subjective or unclear performance measures may cause managers and employees to act in a manner that is inconsistent with the company's business objectives, strategies, ethical standards and prudent business practice.
5. Change Readiness Risk
The people within the organization are unable to implement process and product/service improvements quickly enough to keep pace with changes in the marketplace.
6. Communications Risk
Communication channels (top-down and bottom-up or cross-functional) within the organization are ineffective and result in messages that are inconsistent with authorized responsibilities or established measures.
E. Information Technology Risk
The risk that the information technologies used in the business are not efficiently and effectively supporting the current and future needs of the business or threaten the company’s ability to sustain the operation of critical business processes.
1. Integrity Risk
This risk encompasses all of the risks associated with the authorization, completeness, and accuracy of transactions as they are entered into, processed by, summarized by and reported on by the various application systems deployed by an organization.
2. Access Risk
Access risk includes the risk that access to information (data or programs) or systems will be inappropriately granted or refused. It encompasses the risks of improper segregation of duties, risks associated with the integrity of data and databases and risks associated with information confidentiality.
3. Availability Risk
The risk that information will not be available when needed. This includes risks such as loss of communications (e.g., cut cables, telephone system outage, satellite loss), loss of basic processing capability (e.g., fire, flood, electrical outage) and operational difficulties (e.g., disk drive breakdown, operator errors).
4. Infrastructure Risk
The risk that the organization does not have an effective information technology infrastructure (e.g., hardware, networks, software, people and processes) to effectively support the current and future needs of the business in an efficient, cost-effective and well-controlled fashion.
F. Integrity RiskThe risk of management fraud, employee fraud, and illegal and unauthorized acts, any or all of which could lead to reputation degradation in the marketplace or even financial loss.
1. Management Fraud Risk
Management issues misleading financial statements with intent to deceive the investing public and the external auditor or engages in bribes, kickbacks, influence payments and other schemes for the benefit of the company.
2. Employee Fraud and Third Party Fraud Risk
Fraudulent activities perpetrated by employees, customers, suppliers, agents, brokers or third-party administrators against the organization for personal gain expose the organization to financial loss.
3. Illegal Acts Risk
Managers and employees individually or in collusion commit illegal acts, placing the company, its directors and officers at risk to the consequences of their actions.
4. Unauthorized Use Risk
The company's employees (or others) use its physical and financial assets for unauthorized or unethical purposes.
G. Financial Risk
Financial risk can occur if the company fails to provide adequate liquidity to meet the firm’s obligations or manages financial risks in a manner that is inconsistent with the firm’s business objectives. Its severity depends on a number of factors, which include the firm’s size, industry, financial position (e.g. public/private, leverage, free cash flow to equity, etc.), and the direction of the market as a whole.
1. Price Risk
The exposure of earnings or net worth to changes in market factors (e.g., interest rates, currency rates), which affect income, expense or balance sheet values.
a. Interest Rate RiskThe risk that interest rates deviate from their expected value resulting in lower-than-expected investment yields, higher-than-expected borrowing or product costs, or deterioration of the firm’s competitive position in its industry.
b. Currency RiskThe exposure to fluctuations in exchange rates may arise as a result of business activity in foreign markets and investment in securities, which are issued by overseas entities or are denominated in a foreign currency.
c. Equity RiskThe exposure to fluctuations in the income stream and/or value of equity ownership in an incorporated entity.
d. Commodity RiskThis can be a financial market risk if a company chooses an investment as part of a diversification strategy for managing investment risk. From the industrial perspective, commodity risk is the exposure to fluctuations in prices of commodity-based materials or products (e.g., gold, energy, copper, coffee).
e. Financial Instrument RiskFinancial market risk can vary depending upon the particular segment of the market to which the holder of a financial instrument is exposed, or the way in which the exposure is structured.
2. Liquidity Risk
The exposure to loss as a result of the inability to meet cash flow obligations in a timely and cost-effective manner. Liquidity risk often arises as a result of an investment portfolio with a cash flow and/or maturity profile, which differs from the underlying cash flows dictated by the company's operating requirements and other obligations.
a. Cash Flow RiskActual losses incurred as a result of the inability to fund the operational or financial obligations of the business.
b. Opportunity Cost RiskThe use of funds in a manner that leads to the loss of economic value, including time value losses, transaction costs due to inappropriate or inefficient management of cash flows and other causes of loss of value
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c. Concentration Risk Exposure to loss as a result of the inability to access cash in a timely manner due to the inability to liquidate exposures without moving the market, unusual market conditions, use of "proprietary" financial products, or excessive reliance on a small number of funding sources.
3. Credit Risk
The exposure to actual loss or opportunity cost as a result of default (or other failure to perform) by an economic or legal entity (the debtor) with which the company does business.
a. Default RiskA counterparty will be unable to fulfill its obligations.
b. Concentration Risk Inappropriate emphasis of sales volume or revenues on a single customer, industry sector, or other economic segment leads to exposure to excessive loss.
c. Settlement Risk
In financial terms, this risk arises when financial counterparties effect their payments to each other at different times or in different locations. In a non-financial context, settlement risk describes the risk of unexpected costs and/or administrative inconvenience associated with the failure to deliver payment in the right place at the right time.
d. Collateral RiskThis is the risk that the value of an asset provided as collateral for a loan, receivable, or commitment to perform may be partially or totally lost.
III. Information for Decision-Making RiskThe risk that information used to support strategic, operational and financial decisions is not relevant or reliable. This risk relates to the usability and timeliness of information that is either created or summarized by processes and application systems or a failure to understand information needs.
A. Operational Risk
1. Budget and Planning RiskBudgets and business plans are not realistic, based on appropriate assumptions, based on cost drivers and performance measures, accepted by key managers, or used as a monitoring tool.
2. Product/Service Pricing RiskThe company's price is more than customers are willing to pay or does not cover production and distribution costs.
3. Contract Commitment RiskThe company does not have information that effectively tracks contractual commitments outstanding at a point in time, so that the financial implications of decisions to enter into incremental commitments can be appropriately considered by decision makers.
4. Measurement (Operations) RiskProcess performance measures do not provide a reliable portrayal of operating performance and do not accurately reflect reality. The measures do not provide relevant information for decision making because they are not informative, understandable, believable, actionable, or indicators of change.
5. Alignment RiskThe objectives and performance measures of the company's business processes are not aligned with its overall business objectives and strategies. The objectives and measures do not focus people on the right things and lead to conflicting, uncoordinated activities.
6. Accounting Information RiskFinancial accounting information used to manage business processes is not properly integrated with nonfinancial information focused on customer satisfaction, measuring quality, reducing cycle time and increasing efficiency. The result is a myopic, short-term fixation on manipulating the outputs of business processes to achieve financial targets, rather than fulfilling customer expectations by controlling and improving processes.
B. Public Reporting
1. Financial Reporting Evaluation RiskFinancial reports issued to existing and prospective investors and lenders include material misstatements or omit material facts, making them misleading.
2. Internal Control Evaluation RiskFailure to accumulate sufficient relevant and reliable information to assess the design and operating effectiveness of internal control over financial reporting, resulting in inaccurate assertions by management in the internal control report.
3. Executive Certification RiskFailure to accumulate sufficient, relevant and reliable information to assess the design and operating effectiveness of disclosure controls and procedures, resulting in material information not being disclosed timely to certifying officers and in public reports
4. Taxation RiskSignificant transactions of the company have adverse tax consequences that could have been avoided had they been structured differently. Failure to comply with all tax regulations (e.g. payment and filing requirements) creates risks.
5. Pension Fund RiskPension funds are not actuarially sound, e.g., they are insufficient to satisfy benefit obligations defined by the plan.
6. Regulatory Reporting RiskReports of operating and financial information required by regulatory agencies are incomplete, inaccurate, or untimely, exposing the company to fines, penalties and sanctions.
C. Strategic Risk
1. Environmental Scan RiskThe failure to monitor and stay in touch with a rapidly changing environment resulting in obsolete business strategies.
2. Business Model RiskThe organization has an obsolete business model and doesn't recognize it and/or lacks the information needed to make an up-to-date assessment of its current model and build a compelling business case for modifying that model on a timely basis.
3. Business Portfolio RiskThe risk that a firm will not maximize business performance by effectively prioritizing its products or balancing its businesses in a strategic context.
4. Investment Valuation /Evaluation RiskManagement does not have sufficient financial information to make informed short-term and long-term investment decisions and link the risks accepted to the capital at risk. Management and key decision-makers are unable to reliably measure the value of a specific business or any of its significant segments in a strategic context.
5. Organization Structure RiskThe company's organizational structure does not support change or the company's business strategies.
6. Measurement (Strategy) RiskOccurs when overall organizational performance measures focus primarily on near-term financial results or are not consistent with and do not support business strategies.
7. Resource Allocation RiskThe company's resource allocation process does not establish and sustain competitive advantage or maximize returns for shareholders.
8. Planning Risk The company's business strategies are not driven by creative and intuitive input or based on current assumptions about the external environment resulting in strategies that are out-of-date and unfocused.
9. Life Cycle Risk An organization's approach to managing the movement of its product lines and evolution of its industry along the life cycle (e.g., start-up, growth, maturity and decline) threatens the ultimate success of its business strategies.
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