Risk Classification Systems Short term risk Medium term

Risk Classification Systems

�Short term risk �Medium term risk �Long term risk These are related to operations, tactics and strategy respectively.

Short term risk �It has the ability to impact the objectives, key dependencies and core processes, with the impact being immediate. �It can cause disruption at the time to operations immediately at the time of event occurs. �It is prominently hazardous risk. �Short term risk usually impact the ability of the organization to maintain efficient core processes that are concerned with the continuity and monitoring of routine operations.

Medium term risk �It has a ability to impact the organization in following a (short delay) after the event occurs. �Typically the impact of medium risk would not be apparent immediately, but would be apparent within months, or at most a year after the event. �It is often associated with projects, tactics, enhancement, product launch and developments.

Long term risk �It has the ability to impact the organization some time after the event occurs. �Typically the impact could occur between one to five years (or more)after the event. �It is related to strategy.

Purpose of risk classification system. �In order to identify the risk facing an organization, a structure for risk identification is required. �Formalized risk classification system enable the organization to identify where similar risk is exit within organization. �It also enables the organization to identify who should be responsible for setting the strategy for management of related or similar risk.

�It also enables the organization to better identify the risk appetite, risk capacity and total risk exposure in relation to each risk, group of similar risk or generic type of risks. �The FIRM risk scorecard provides such a structure, but there are many such risk classification systems available. �It builds on different aspects of risks, including timescale of impact, nature of impact, whether a risk is hazard, control or opportunity and overall risk exposure and the risk capacity of the organization.

�FIRM scorecard provide for classification of risks as being primarily financial, Infrastructure, Reputational or Market place in Nature. �This score card can be used as template for the identification of corporate objectives, stakeholder expectations and key dependencies. �It is one of the important tool and technique. �It facilitates robust risk assessment by ensuring that the chances of failing to identify a significant risk are much reduced.

�It is important for the organization to decide which risk classification system which fully satisfy the needs and requirements. �Risk can be grouped according to the nature of the risk, the source of risks, and/or the nature of impact.

Examples�COSO �IRM Standard �BS 31100 �FIRM risk scorecard �PESTLE. �There are similarities in most of these systems, although PESTLE takes slightly different approach. �It should be noted that identifying risk as: A. Hazard, control or opportunity ; B. High , medium or low; C. Short term, medium term and long term should not be considered to be formal risk classification system.

Risk classification systems Standard or COSO Framework IRM BS 31100 FIRM PESTLE Classificatio n Headings Financial Strategic Operation al Hazard Strategic Program Project Financial operationa l Financial Infrastructur al Reputational Market Place Political Economic Sociological Technological Legal Environmenta l Strategic Operations Reporting Compliance

FIRM risk scorecard Attributes of FIRM risk scorecard Financial Infrastructural Reputational Market Place Risk that can be impact the way in which money is managed and profitability is achieved. Risk that will impact the level of efficiency and dysfunction within the core processes. Risk that will impact the desire of the customers to deal or trade and the level of customer relation. Risk that will the impact the level of the trade or expenditure and customer retention. Internal or Internal External Risk Internal External Quantifiable Sometimes Not always Yes Description Usually

Measurement Gains or loss (performance from internal indicator) financial control Level of efficiency in process or operations Nature of publicity and effectiveness of market profile Income from commercial and market activities. Performance gap Procedures Process Perception Presence Failure of procedures to control internal financial risks Failure of processes to operate without dysfunction Failure to achieve desired perception of the organization Failure to achieve required presence in the market place • Delegation of authority • Process control • Marketing • Strategic and business plan Control mechanisms • Advertising • Internal control • Loss control • Reputation • Insurance and brand risk financing protection • Opportunity investment

PESTLE risk classification system Category of risk Description Political Tax policy, employment laws, environmental regulations, trade restrictions and reforms, tariff and political stability Economical Economic growth/decline, interest rates, exchange rates and inflation rates, wage rates, minimum wage, working hours, unemployment (local and national) credit avaibility, cost of living etc. Sociological Cultural norms and expectations, health consciousness, population growth rate, age distribution, career attitudes, emphasis on safety, global warming Technological Technology changes that impact your product or services, new technologies, barriers to entry in given markets, financial decisions like outsourcing and supply chain. Legal Changes in legislation may impact the employment, access to materials, quotas, resources, imports/exports , taxation etc. Environmental Ecological and environmental aspects, although many of these factors will be economic or social in nature.

Advantages of a PESTLE analysis �Simple framework �Facilitates an understanding of a wider business environment. �Encourages the development of external and strategic thinking. �Enables the organization to spot business opportunities and exploit them fully.

Disadvantages of PEETLE �Requires different people being involved, each having different perspectives. �Risk of capturing too much data is that it may make it difficulties to see priorities. �Access to quality external data sources can be time consuming and costly.

Hazard, control and opportunity risk Personal issue grid Financial risks- procedure gaps: How well do your procedures manage your finances? Dependency Long term Medium term Short term Investments Pension arrangements Property purchase Share purchase Business opportunities Betting habits Insurance arrangements Expenditure Accommodation holiday pattern Car purchase Rail season ticket Credit card ownership Shopping behavior Travel arrangements

Infrastructure risk- process gap: How well does your body facilitates your processes? Dependency Long term Medium term Short term Health Family history Personal lifestyle Vegetarianism Medical treatment Dieting Weight gain Exercise Alcohol and drugs Illness and accident Emotional Marriage and Friendships Hobbies and children Cosmetic surgery Sex Ethnics origins Sexuality Reputational risks- perception gap: how you are perceived by your peer group? Dependency Long term Medium term Short term Personality Criminal behavior Neighborhood Mood and temperament Charity work Clothes Personal hygiene Charity donations Professional Intelligence and Behavior pattern Qualifications Changing jobs Attending training Continuous learning

Market place risk-presence gap: what is your presence in market place Dependency Long term Medium term Short term Occupation Career selection education Society activities memberships Presenting training Income Ambition Seniority Extra part -time work Sales of share Selling possessions Casual works.