Categorization of management risk , Financial Management

Categorization of management risk:

Once each event has been evaluated, and been classified as to its probability and impact, the next step is to categorise those events. To do so, the probability factor and impact factor are combined.

A good way of visualising this process is by using the following table:

 

Severity of Impact (A = insignificant, E = catastrophic)

A

B

C

D

E

Likelihood of Occurrence

(1 = rare, 5 = almost certain)

1

 

 

 

 

 

2

 

 

 

 

 

3

 

 

 

 

 

4

 

 

 

 

 

5

 

 

 

 

 

In the above example, the particular event has been classified as being likely to occur (4), and the impact of it occurring would be major (D). The combination of the two places the event in the area outlined.

You will see from the above sample that the shaded box falls within the bordered area. The different shadings represent different areas of risk as assessed by the organisation itself.

It is important that organisation sets the various areas of risk, as one organisation may have a totally different tolerance of risk than another.

The risk categories used in this particular example could be classified as follows:

Shaded Area

Description

Light

An area of relatively low risk. If it can be addressed with simple measures then should do so.

Medium

Areas of medium risk. Should have procedures in place but still not take precedence over addressing areas of high risk.

Dark

Area of high or extreme risk. Should take immediate steps to reduce or eliminate risk regardless of cost.

Looking at the above example, the particular event falls within the dark area, representing an area of high / extreme risk. The organisation in this case should take immediate steps to reduce or eliminate the risk involved with this event happening.

Posted Date: 10/1/2012 4:10:09 AM | Location : United States







Related Discussions:- Categorization of management risk , Assignment Help, Ask Question on Categorization of management risk , Get Answer, Expert's Help, Categorization of management risk Discussions

Write discussion on Categorization of management risk
Your posts are moderated
Related Questions
Question 1 International trade is the economic interaction among different nations involving the exchange of goods and services. Discuss the role of Banks in International Trade T

Common-size Analysis • Prepare a Common-size Analysis for the Balance Sheet and Income Statement • This should include about 12 accounts in the Balance Sheet and about 10 Inc

1. Your welfare depends on how much time you travel T and how much time you play P and is the product of the two, i.e.,  W = T * P (a) The total amount of time you have is 10 ho

Define operating cycle and long and short operating cycle? Use of operating cycle? Can someone give me assistance on these questions??

Explain the bird in the hand theory of cash dividends. The bird in the hand dividends theory state that dividends received now are better than a promise of future dividends.  U

What is the difference between business risk and financial risk? Business risk refers to the improbability a company has with regard to its operating income also known as earni

A drug company has developed a new painkiller for chronic pains, although it is doubtful whether the new drug actually has any effect. The company conducts a double-blind experimen

Extendible reset bonds are floaters in which the issuer is required to reset the coupon rate so that the issue will trade at a predetermined price (usually above

Q. Credit Standards for Formulation of Optimum Credit Policy? Credit Standards: - Credit standards are the essential criteria set for extension of credit to customers. Decision

Methods of workers participation in management: the various methods of workers participation in management are as follows: 1. Informative participation: it refers to sharing of