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

Multicollinearity, Multicollinearity As the degree of correlation betwe...

Multicollinearity As the degree of correlation between the independent variables increases, the regression coefficients become less reliable. That is, although the independent

State the significance of the cost of capital, State the Significance of th...

State the Significance of the Cost of Capital It must be recognized at the outset that cost of capital is one of the most difficult and disputed topics in the finance theory.

Define compensating balances, What are compensating balances and why do ban...

What are compensating balances and why do banks require them from some customers?  Under what circumstances would banks be most likely to impose compensating balances? Compensati

Enumerate the potential drawbacks of divestment, Potential drawbacks of div...

Potential drawbacks of divestment - There may be some loss of economies of scale. Fixed overheads would have a lower capacity to recover them. - Cash generated may not be

Foreign exchange - maximum loss, Q. Foreign exchange - Maximum loss? Fr...

Q. Foreign exchange - Maximum loss? From Marton's point of view an adverse outcome is depreciation of the dollar against sterling as this lowers its income when converted into

Preparing the divestiture, Preparing the Divestiture No two divestiture...

Preparing the Divestiture No two divestitures are exactly alike and one of the foremost tasks of the project team is to determine precisely what is to be sold. While some dives

Explain how eurocurrency is created, Explain how Eurocurrency is created. ...

Explain how Eurocurrency is created. Answer: The center of the international money market is the Eurocurrency market. A Eurocurrency is a time deposit of money in an internationa

Common size financial statement, Common Size Financial Statement Common...

Common Size Financial Statement Common Size Financial Statement is a company financial statement that shows all items as percentages of a common base figure. This kind of finan

Explain systematic risks in financial management, Q. Explain Systematic Ris...

Q. Explain Systematic Risks in Financial management? Systematic risk in non-diversifiable and is associated with the securities Market as well as economic, sociological, politi

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