Short definitions of business risk
Competitor, Customer wants, Technological innovation, Sensitivity, Shareholder relations, Capital, Sovereign/political, Legal, Regulatory, Industry, Financial markets, Catastrophic loss
Operations Customer satisfaction Human resources Knowledge capital Product development Efficiency Capacity Performance gap Cycle time Sourcing Channel effectiveness Partnering Compliance Business interruption Product/service failure Environmental Health and safety Trademark/brand erosion Empowerment Leadership Authority/limit Outsourcing Performance incentives Change readiness Communications Information processing/ technology Relevance Integrity Access Availability Infrastructure Integrity Management fraud Employee/third party fraud Illegal acts Unauthorized use Reputation Financial Price Interest rate Currency Equity Commodity Financial instrument
Liquidity Cash flow Opportunity cost Concentration Credit Default Concentration Settlement Collateral
Information for decision making risk
Process/operational Products/service pricing Contract commitment Measurement (operations) Alignment Business reporting Budget and planning Accounting information Financial reporting evaluation Taxation Pension fund Investment evaluation Regulatory reporting Environment/strategic Environmental scan Business model Business portfolio Valuation Organization structure Measurement (strategy) Resource allocation Planning Life cycle
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ENVIRONMENT RISK Environment risk arises when there are external forces that could affect the viability of the enterprise’s business model, including the fundamentals that drive the overall objectives and strategies that define that model. 1. 2. 3. Competitor risk. Actions of competitors or new entrants to the market impair the firm’s competitive advantage or even threaten its ability to survive. Customer wants risk. Pervasive customer needs and wants change and the firm isn’t aware, e.g. increased demand for faster delivery or turnaround on products and services. Technological innovation risk. The firm is not leveraging advancements in technology in its business model to achieve or sustain competitive advantage or is exposed to the actions of competitors or substitutes that do leverage technology to attain superior quality, cost and/or time performance in their products, services and processes. Sensitivity risk. Over commitment of resources and expected future cash flows threatens the firm’s capacity to withstand changes in environmental forces (e.g. interest rates, market demand, changes in regulations, etc.) beyond its control. Shareholder relations risk. A decline in investor confidence in the firm’s business model or ability to execute its model threatens its capacity to efficiently raise capital or sustain share valuations. Capital availability risk. Insufficient access to capital threatens the firm’s capacity to grow, execute its business model and generate future financial returns. Sovereign/political risk. Adverse political actions threaten the firm’s resources and future cash flows in a country in which the firm has invested significantly, is dependent on a significant volume of business or has entered into a significant agreement with a counterparty subject to the laws of that country. Legal risk. Changing laws threaten the firm’s capacity to consummate important transactions, enforce contractual agreements or implement specific strategies and activities. Regulatory risk. Changing regulations threaten the firm’s competitive position and its capacity to efficiently conduct business. Industry risk. Changes in opportunities and threats, capabilities of competitors, and other conditions affecting the firm’s industry threaten the attractiveness or long-term viability of that industry. Financial markets risk. Movements in prices, rates, indices, etc., affect the value of the firm’s financial assets and stock price,...