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

Convertible bonds, Basics of Convertible Bonds The provision of convers...

Basics of Convertible Bonds The provision of conversion in a corporate bond entitles the bondholder the right to convert the bond into a predetermined number of shares of commo

Expalin term commercial banks in financial system, Commercial banks Com...

Commercial banks Commercial banks allow deposits liabilities to make loans assets as well as to buy government securities. Deposits are wider in range including checkable depos

Explain about the interest payments, Explain about the Interest payments ...

Explain about the Interest payments Debenture interest is generally paid semi-annually however annual payments aren't uncommon.  Usually there are registered debentures on whic

Calculate the interest value , 1. Suppose a firm's tax rate is 35%. What af...

1. Suppose a firm's tax rate is 35%. What affect would a $10 million operating expense have on this year's earnings?  What effect would it have on next year's earnings? 2. What

State the economic conditions of cost of capital, State the economic condit...

State the economic conditions of cost of capital General economic conditions These include demand for and supply of capital within the economy and level of expected inflatio

TRIAL BALANCE, #The following items are found in the The following items ar...

#The following items are found in the The following items are found in the trial balance of M/s Sharada Enterprise on 31st December, 2000.

Determination of credit terms, Determination of Credit Terms:- The sec...

Determination of Credit Terms:- The second feature of receivable management, subsequent to setting the credit standards and assessment of credit worthiness of the customers, i

Purchasing power parity achieved by us and canadian dollor, Under what circ...

Under what circumstance would the U.S. dollar and the Canadian dollar be said to have achieved purchasing power parity? The U.S. dollar and the Canadian dollar possible conside

Advantages to a company from having a robust health, Z works for HS Company...

Z works for HS Company and has been asked to undertake an assessment of any health and safety issues that might be potential hazards in the department which she manages. Z's respon

State about investment decision, State about Investment decision Dec...

State about Investment decision Decisions relating to investment in both current and capital assets. Finance manager has to evaluate different capital investment proposalsan

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