Risk Categories Definition
Risk categories can be defined as the classification of risks as per the business activities of the organization and provides a structured overview of the underlying and potential risks faced by them. Most commonly used risk classifications include strategic, financial, operational, people, regulatory and finance.
Why do you use Risk Categories?
- Risk categories help in the identification of risks and enable it to become robust and effective at the same time.
- It ensure that the users are able to track the origin of the underlying and potential risks faced by an organization.
- These categories help in the determination of the efficiency of the control systems that are implemented in all the departments of an organization.
- It ensures that the process of risk identification is done in a comprehensive manner covering all the probable aspects of the underlying and upcoming risk conditions.
- With these categories, users can determine the areas that are highly prone to risks and it even allows in the identification of common as well as probable causes.
- With risk categories, users can even develop appropriate risk dealing mechanisms.
How to Identify Categories of Risk?
An organization must scrutinize its process assets in order to find out if the same has a defined set of risk categories or not. The users can make use of techniques like Delphi technique, SWOT analysis, documentation reviews, information gathering techniques, brainstorming, root cause analysis, interviewing, assumption analysis, checklist analysis, risk register, outputs of risk identification, impact matrix, risk data quality assessment, simulation technique, etc.
Top 15 Risk Categories
The following are the categories of risk –
#1 – Operational Risk
Operational risks can be defined as the risks of loss arising as a result of improper implementation of processes, external issues (weather problems, government regulations, political and environmental pressures, and so on), etc. Operational risks can be better understood as a type of risks that take place due to inefficiencies in business operations carried out by an organization. Examples of operational risks are insufficient resources, failure in resolving conflicts, etc.
#2 – Budget Risk
Budget risk can be defined as a risk that arises out of an improper estimation of a budget allocated to a particular project or process. Budget risk is also regarded as cost risk and the implications of such a risk are delay in the completion of a particular project, pre-mature handover of the project, failure to deliver the quality project or compromise in the quality of the project in comparison to what was committed to the client, etc.
#3 – Schedule Risk
When the release or completion of the project is not assessed and addressed properly, the schedule risk takes place. Such a risk can impact a project and might even be the reason behind the failure of the same and thus, can result in losses for the company.
#4 – Technical Environment Risk
Technical environment risk can be regarded as the risk concerning with the environment in which both the customers and the clients operate. This risk can take place due to the testing environment, regular fluctuations in production, etc.
#5 – Business Risk
Business risks can take place as a result of the unavailability of a purchase order, contracts in the initial stage of a particular project, delay in the attainment of inputs from clients and customers, etc.
#6 – Programmatic Risk
These are the risks that are not within the control of a program or outside the purview of the operational limits. Change in product strategy or government regulations are examples of programmatic risks.
#7 – Information Security Risk
Information security risks are concerned with the breach of the confidentiality of a company’s or clients’ sensitive data. The breach of such data can be a huge risk for an organization and it might not just cause financial losses but might also result in loss of goodwill of the same.
#8 – Technology Risk
Technology risks take place as a result of sudden or complete change with respect to technology or even the installation of new technology.
#9 – Supplier Risk
Supplier risks take place in a scenario where there is third-party supplier interference in the development of a particular project owing to his association in the same.
#10 – Resource Risk
Resource risk takes place due to improper management of company’s resources such as its staff, budget, etc.
#11 – Infrastructure Risk
Infrastructure risk takes place as a result of inefficient planning concerning infrastructure or resources and that is why it is always important to have appropriate planning of infrastructure so that the project does not get impacted.
#12 – Technical and Architectural Risk
Technical and architectural risk are such type of risk that results in the failure of overall functioning and performance of an organization. These risks arise out of the failure of software and hardware tools and equipment that are taken into use in a particular project.
#13 – Quality and Process Risk
Quality and process risk takes place due to improper application of customizing a process and hiring of staff to the process that is not well trained and as a result of which the outcome of a process gets compromised.
#14 – Project Planning
Project planning risks are such risks that arise out lack of proper planning concerning a project. This lack of project planning can cost the project to sink and fail to meet the expectations of the clients as well.
#15 – Project Organization
Project organization is another risk associated with the improper organization of a particular project. This lack of project organizing can cost the project to sink and fail to meet the expectations of the clients as well.
This has been a guide to Risk Categories and its definition. Here we discuss the top 15 risk categories with detail explanation along with how to identify it and Why do you use it?. You can learn more about from the following articles –