Learn about the four different types of nonfinancial corporate risks, including operational, legal/regulatory, strategic, and reputation risks. Get examples of each of these four categories of nonfinancial corporate risk.
- When people talk about corporate finance…and the risks companies face,…they often think that corporate risks are only financial,…but they're not.…Businesses face nine different kinds of risks.…Five are financial, but four,…and the most important four, are not financial.…These four nonfinancial risks companies face…include operational, strategic,…reputation and legal or regulatory risks.…Let's take a look at each one,…and I'll give you some examples to guide you…through identifying them in your own company.…
The first kind of nonfinancial risks are operational risks.…These risks are tied to the day to day…running of a business, and how they may be done wrong.…Think about how lacking antivirus software…presents a technology risk.…Having bad management could lead to mismanagement,…or insufficient controls in quality, environmental,…safety and financial reporting could lead to problems…with legal repercussions.…
These are all risks from incompetence…and people are just doing their jobs wrong.…These risks require structure in operations…
Jason Schenker of Prestige Economics discusses nine types of corporate risk, including financial and nonfinancial risks. He explains the difference between direct risks that companies face constantly, as well as indirect risks that usually come from vendors, competitors, and counterparties. Then he covers how risks are typically resolved, either by elimination (divestiture or acquisition), transfer (hedging or insuring), offset (creating a natural hedge), or ownership (keeping the exposure). Finally, he reviews how corporations can actively measure and monitor risk by appointing dedicated risk managers, officers, and committees.
- Understanding risk in corporations
- Risk management process
- Nine different types of corporate risks
- Financial market risks
- Direct and indirect risks
- Risk management solutions
- How corporations actively manage risk