Risk Fundamentals and Frameworks

The terms

• Catastrophic Risk

  Catastrophic risk is the chance of an event so severe that it causes losses far beyond normal experience and threatens the survival of an organisation, a market or a community.

  Domain: Risk Management

• Emerging Risk

  An emerging risk is a newly developing or changing threat whose causes, likelihood and impact are still poorly understood, so it cannot yet be measured with the usual tools.

  Domain: Risk Management

• Financial Risk

  Financial risk is the possibility of losing money or value through the way an organisation lends, invests, trades or funds itself. Credit, market and liquidity risk are its main forms.

  Domain: Risk Management

• Inherent Risk

  Inherent risk is the exposure an activity carries by its very nature, judged as if no safeguards were in place. It is the starting point before any control is credited.

  Domain: Risk Management

• Moral Hazard

  Moral hazard arises when protection from loss changes behaviour: a party covered against the downside takes chances, or less care, that it would avoid if it paid for failure itself.

  Domain: Risk Management

• Risk Governance

  Risk governance is the set of structures, roles, decision rights and reporting lines through which an organisation oversees and directs how risk is taken and managed, from the board down.

  Domain: Risk Management

• Risk Identification

  Risk identification is the first stage of risk management: spotting what could go wrong, or unexpectedly go right, for an organisation's goals and recording each item clearly enough to act on.

  Domain: Risk Management

• Risk Limit

  A risk limit is a measurable boundary on how much exposure a person, desk or business unit may take, set to keep activity inside the board's risk appetite.

  Domain: Risk Management

• Risk Management Framework (RMF)

  A risk management framework is the structure of policies, roles, processes and tools an organisation uses to manage risk consistently, from setting objectives to reporting results to the board.

  Domain: Risk Management

• Risk Management Maturity Model

  A risk management maturity model rates how developed an organisation's risk practices are, usually on a scale of stages from ad hoc to optimised, and shows what to improve next.

  Domain: Risk Management

• Risk Taxonomy

  A risk taxonomy is a structured classification of risks into categories and sub-categories with agreed names and definitions, so that risks are described and reported the same way across the organisation.

  Domain: Risk Management

• Risk Transfer

  Risk transfer moves some or all of the financial cost of a risk to another party, usually through insurance, a contract or a hedge, while the original party stays responsible for the underlying activity.

  Domain: Risk Management

• Swiss Cheese Model

  The Swiss cheese model explains accidents by treating every safeguard as having weak spots. Harm follows only when the weak spots in several safeguards happen to coincide.

  Domain: Risk Management