Categorization of management risk , Financial Management

Assignment Help:

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.


Related Discussions:- Categorization of management risk

What is bridge financing, Bridge Financing A type of short-term financ...

Bridge Financing A type of short-term financing used to cover an organization short-term want; a loan that is expected to be repaid relatively fast.

Asset-backed securities, Introduction When financial assets...

Introduction When financial assets or bonds are pooled together and offered to the investors for receiving the inflow of funds from these underlying

Define advantages for a firm to cross list its equity shares, Discuss any a...

Discuss any advantages you can think of for a company to (1) cross-list its equity shares on much more than one national exchange, (2) To source new equity capital fro

Definition of cost of capital, Definition of cost of capital In analyzi...

Definition of cost of capital In analyzing the cost of capital it is presumed that business risk of the firm remains unchanged (i.e., that projects accepted don't affect the va

Evaluate the vulnerability, Assume you are a professional financial analyst...

Assume you are a professional financial analyst working for a wealthy investor.  Your client has $2.6 million to invest and wants to sink it into a single stock (diversification is

Valuation methods, Valuation Methods: 2 - Year Method Perpetual ...

Valuation Methods: 2 - Year Method Perpetual Growth Method Constant Growth Method Zero Growth Method Growth Phases Valuation Model:  'Constant Growth Met

Distinguish between diversifiable and non-diversifiable risk, Question: ...

Question: (a) An efficient financial market is assumed to hold under the Capital Asset Pricing Model (CAPM). What is the main hypothesis of an efficient financial market? (

banking in business, a. Talk about the role of banking in business.  b....

a. Talk about the role of banking in business.  b. Set out the precise role played by Investment Banking and the challenges of corporate governance.

Define the term- future cost and historical cost, Define the term- Future C...

Define the term- Future Cost and Historical Cost Future cost of capital refers to expected cost of funds to be raised to finance a project. In contrast, historical cost signifi

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd