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

Write down budget constraint - budget line, You have $20 to spend on high q...

You have $20 to spend on high quality pens and low quality pens. High quality pens cost $5 each and low quality pens cost $2 each.    (a) Suppose that you will spend your entire

Show inter-corporate deposits, Q. Show Inter-Corporate Deposits? Inter-...

Q. Show Inter-Corporate Deposits? Inter-Corporate Deposits: Inter-corporate lending/borrowing or deposits (ICDs) is a popular short-term investment alternative for companies in

What is over capitalization, Accounting and Financial Management 1. Wha...

Accounting and Financial Management 1. What is over capitalization? How do we know over capitalization has occurred? 2. Explain permanent and temporary working capital. 3

Determine interest coverage ratio, Q. Determine Interest coverage ratio? ...

Q. Determine Interest coverage ratio? Current interest coverage ratio = 7000/500 = 14 times Increased profit before interest and tax = 7000 × 1.12 = $7.84m Increased inte

Role of banks in international trade transactions, Question 1 Internationa...

Question 1 International trade is the economic interaction among different nations involving the exchange of goods and services. Discuss the role of Banks in International Trade T

Participants in hedge funds-management company, The Manager or Management C...

The Manager or Management Company The firm sponsoring the Fund could often structure it as a management company. Its primary responsibility is to determine investment strategie

Rationale for mergers, Rationale for Mergers Many of the motives behind...

Rationale for Mergers Many of the motives behind mergers of firms are discussed hereunder: Growth Growth is the most general and important motive for mergers. Merging f

Average standard hook cycle - indirect cost, Following is the information f...

Following is the information furnished by a private port for investing Rs. 10 crore in a 20 Tonne Gantry Crane. The entire funding is from a loan carrying an interest of 11%. The l

What was the value of each person investment, Joe and Sam each invested $20...

Joe and Sam each invested $20,000 in the stock market. Joe's investment increased in value by 5% per year for 10 years. Sam's investment decreased in value by 5% for 5 years and th

Securitization, Securitization -Source of financing whereby an entity's ASS...

Securitization -Source of financing whereby an entity's ASSETS (characteristically mortgage loans, lease obligations or other kinds of RECEIVABLES) are placed in a special purpose

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