Risk Management Vocabulary

Bankruptcy

A legal process wherein an individual or company, unable to fulfill their financial obligations, seeks relief from some or all of their liabilities.

Contingency Plan

A predefined course of action that minimizes the disruption of unexpected events and emergencies.

Cyber Security Risk

The potential for financial loss, data breaches, reputational damage, and operational disruption due to cyberattacks, hacking, phishing, or other malicious activities targeted at an organization's digital assets and information systems.

Environmental Risk

The potential for businesses to be negatively affected by shifts in climate patterns and weather conditions, alterations to the ecosystem, and the accompanying regulatory policies.

Financial Risk

The potential for financial stakeholders—such as investors, lenders, and shareholders—to lose money.

Guarantee

A promise a product will perform as intended.

Insurance

A financial arrangement in which a person or entity pays premiums to an insurance company in exchange for coverage or compensation for specified losses or damages.

Legal Risk

The potential for a business to face penalties, financial losses, and reputational damage, due to failure to adhere to laws, regulations, or industry standards.

Management Risk

The potential for inadequate leadership, poor decision-making, and ineffective management practices that affect a business.

Market Risk

The potential for broad macroeconomic conditions to affect a business's product demand, operational costs, and overall financial stability.

Operational Risk

The potential for disruptions in day-to-day business operations, such as equipment failure, supply chain interruptions, or employee errors.

People Risk

The potential risks associated with employees including turnover, lack of training, misconduct, insufficient workforce planning, and other items that can impact productivity, morale, and efficiency.

Product Risk

Risks specific to a company's product and includes poor quality and/or bad customer reviews.

Production Risk

The potential for disruptions in the production and manufacturing process (e.g., machine malfunctions, supply chain disruptions, and supply shortages).

Pure Risk

A type of risk that exists when there is a possibility of loss or no change, with no potential for gain.

Qualitative Risk Assessment

The evaluation of risks based on subjective criteria, often using descriptive terms like high, medium, or low to prioritize risks.

Quantitative Risk Assessment

The evaluation of risks using objective and numerical data to assess their likelihood and impact.

Risk

The possibility of circumstances or events negatively affecting an organization's goals, assets, operations, and/or financial returns.

Risk Acceptance Strategy

A risk management strategy to retain and manage risk because the potential consequences are deemed manageable or the cost of mitigation is minimal.

Risk Assessment

The process used to identify potential risks and analyze what would happen if those risks occurred.

Risk Avoidant Strategy

A risk management strategy that prioritizes minimizing potential losses over the possibility of achieving higher returns.

Risk Management

Identifying, understanding, and predicting circumstances or events that might have negative consequences, taking proactive measures to avoid these risks, and effectively combating them if/when they occur.

Risk Management Process

A systemic approach to identifying, assessing, responding to, and monitoring risks, to reduce their impact on an organization.

Risk Matrix

A business tool that plots risk assessments on a grid based on their likelihood and impact.

Risk Mitigation Strategy

A risk management strategy that lessens the impact of certain risks and threats or enhances opportunities associated with risks and threats by implementing safeguards and contingency plans.

Risk Register

A database that lists all identified risks, the details of each risk (e.g., cause, impact, likelihood, response), and how to manage them.

Risk Response Plan

The organizational approach to addressing and managing identified risks by avoiding them altogether, reducing their potential impact, transferring the risk to another party, or accepting them.

Risk Transfer Strategy

A risk management strategy that shifts the potential impact of a risk to a third party to reduce its exposure to the negative consequences of that risk.

Speculative Risk

A type of risk that exists when there is a possibility of loss, no change, or gain.

Strategic Risk

The potential for a business to suffer losses or fail to achieve its objectives due to poor strategic decisions, ineffective business planning, or failure to adapt to changes in the competitive environment.

Strategy

A route or plan of action designed to achieve certain goals and objectives.

SWOT Analysis

An analysis of a company's strengths, weaknesses, opportunities, and threats, used by companies to evaluate their competitive position.

Warranty

A guarantee by the manufacturer or seller that a product will meet a certain level of quality and reliability, and that defective products will be repaired, replaced, or refunded.