TYPE & SOURCES OF RISKS.

lead to incorrect
analysis & decision
2 ways to identify risk :

Compliance Risks ● Not comply w rules &

1. Retrospective Risks
regulations
● Previously occurred
● Penalties, loss of
(incidents/accidents)
reputation
● Easiest way (easier to believe somethng
if it has happened before.
Type of Risk Analysis
● Easier to quantify impact & to see
damage it has caused. 1. Qualitative
● Sources of information : ➔ Involves identifying threats
➔ Hazard ➔ Result sown using probability / impact
➔ Audit reports ranking matrix
➔ Customer complaints ➔ Categorize risks by source / effect
➔ Past staff

2. Prospective Risks
● Harder to identify
● Not yet happened (might happen)
● Methods for identify :
➔ Brainstorming w staff/external
stakeholders
➔ Flowcharting a process
➔ Review system design
➔ Conduct interviews w relevant
people

Risk Categorization

2. Quantitative
Strategic Risks ● Arise from long term
➔ Focus on numerical values of the risks
effects.
present
● Relating to nature &
type of business, ➔ Allows to determine potential risk of
changes in competitive, project
legal environments ➔ Help to decide if project worth
pursuing
Operational Risks ● Short term
● Day to day problems
3. Semi-quantitative
● Example : machine
➔ Highlight the assessment of hazards &
breakdown
barriers
Reporting Risks ● Internal & external ➔ Conducted on basis of hard data &
reporting not reliable analysis of failure causes, barrier
● Example ; mngmnt performance & scenario development.
accounts contain errors
SYSTEMATIC & UNSYSTEMATIC RISKS Business Risk

1. Systematic Risks 1. Strategic Risks

● Undiversifiable risks ● Business strategies will fail
● Cannot be eliminated by diversification ● Launching new product
● Uncontrollable
● External risk occur due external 2. Product Risk
factors ● Failure of new product launches
● Affect all securities in same manner ● Loss of interest in existing product
● Eg : natural disaster
3. Commodity price risk
2. Unsystematic Risks ● Rise in commodity prices
● Diversifiable risks ● Increase f price in palm oil
● Can be eliminated through
diversification 4. Product reputation risk
● Change in product’s reputation/ image
● Controllable
● Product associated with bad publicity
● Internal risk occur due to internal
factors
5. Operational Risk
● Unique to firm/industry
● Business operations might be
● Eg : labour strike, mismanagmnt of
inefficient
company
● Failure in business process
● Unavailability of raw materials
TYPE OF RISKS

Political, legal & regulatory risk. 6. Contractual inadequacy risk

1. Political risk ● Terms of contract do not fully cover a
● Due to political instability. business against all potential
● External risk to business outcomes.
● Change of govern
● Result in dramatic changes for Economic risk
business ● Changes in overall business condition
● External risk
2. Legal/litigation risk ● Uncontrollable
● Legal action will be brought against ● Resulted from : inflation, unemployment
the business rates
● Organ might face risks of negligence, ● Eg : changes in population in country
compliance / risk of being sued result in changes on target market
population
3. Regulatory Risk
● Changes in regulation affecting the Financial Risk
business ● Change in financial condition

4. Compliance Risk 1. Credit risk

● Non-compliance with law resulting in ● Non payment by customer
fines & penalty. ● Factors to the exposure :
 ➔ Total volume of sales
➔ Organization’s credit policy
➔ Debt collection procedures
Fraud Risk
2. Political risk
● Associated with action taken by policy
maker
● Affect the financial aspects of the
business
● Changes in fiscal policy
3. Currency risk
● Risk of fluctuations in exchange rate
● Foreign exchange risk
● Sub categories :
➔ translation/ currency
conversion exposure
Corporate Reputation Risk
➔ Currency transaction
exposure
4. Interest rate risk
● Changes in interest rate
● Arise from borrowing & investing
● Affect stock prices, foreign exchange
rates
Employee Malfeasance Risk
5. Gearing risk
● Business funding / liquidity risk
● How business is financed
● Large amount of borrowing
Risk in international operations
● Funding / cash flow risk
Technology Risk
● Technology changes occur
● Present new opportunities to business
● Downside : make existing process
obsolete/inefficient
Environment Risk
● Arises from changes in environment
● Eg : climate change/natural disaster
● Arises from changes to environment :
➔ Org ha no direct control
(global warming)
➔ Orgn might be responsible (oil
spillages)
● Operational business risk
● Controllable by most business
● Size of fraud is factor of :
➔ Probability of fraud occurring
➔ Size of losses if fraud occur
● Should be managed by :
➔ Fraud prevention ; ensuring
opportunities to commit fraud
are minimised
➔ Fraud detection & deterrence :
identify fraud after it
occurred.
● Better reputation, more risk of losing
the reputation
● Arise from :
➔ Environmental performance
➔ Social performance
➔ Health & safety performance
● Downside risk for most of the business
● Doing wrong / committing an offense
● Type of operational business risk
1. Culture
● Malaysia business may fail in venture
overseas
● Good knowledge of local culture can
give comp an advantage
2. Litigation
● Greater danger of litigation risk in
overseas operations
● Parent comp managemnt may not
understand the legislation well
 3. Credit
● Greater difficulty in controlling credit
risk on overseas sales
● Chasing debt more difficult & expensive

4. Items in transit
● Greater risk of losses / damage in
transit if comp transporting goods
great distances

5. Financial risk
● Foreign exchange risks
● Change in financial condition
● Eg : interest rate, exchange rate

Cyber Risk
● Failure of its information technology
systems
● Arisen from :
➔ Deliberate breaches of
security
➔ Accidental breaches of
security
➔ Operational causes