Business, Legal & Accounting Glossary
A process to determine the cost or impact of an event or hazard that could pose a threat to the organization and then assign a level of probability that it will materialize. Based on a risk assessment, management can then develop procedures or controls that can reduce or eliminate the risk.
The activity of assessing an organization’s operations and assets to identify the potential of loss is known as risk assessment. This data is then utilised to make a variety of operational adjustments in order to lower the risks that are deemed excessive.
Risk assessments must be done on a frequent basis to allow for changes in the financial and operating environment to be incorporated into the assessment.
Changes in economic conditions, political situations, the environment, and other factors may cause these adaptations. A drop in general economic conditions, for example, could raise the projected rate of default on bank-issued mortgages. Changes in weather conditions, on the other hand, could modify the estimated quantities of grain sent by a freight transfer firm, affecting its cash flow. Another example is a corporation that has recently purchased another business and undertakes a risk assessment of the acquiree’s entire operation, including customer churn, employee theft, and product recalls.
Alternatively, a risk assessment of a company’s computer systems could reveal various security flaws that a hacker could exploit.
The risk assessment process provides the following benefits to a company:
Risk mitigation measures can be implemented in a variety of ways. Procedures, for example, can be changed to remove dangerous activities. Risk can also be transferred to a third party, such as by outsourcing or purchasing insurance. In other circumstances, management may choose to keep risk, particularly if the company has extensive expertise of the risk area and believes it can effectively manage it.
The chief risk officer (CRO) typically conducts risk assessments. If there is no CRO (as may be the case in a smaller firm), the chief financial officer normally takes over.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Risk Assessment are sourced/syndicated and enhanced from:
This glossary post was last updated: 5th January, 2022 | 0 Views.