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Risk Faced by Organizations

Updated on July 15, 2013

Risk can be classified in numerous ways, including legal, financial, IT, fraud, operational and reputation. There are number of diverse risks that organizations are faced today specifically those organizations operating in international and commercial activities. The nature of different risks has been discussed in detail below;

1 – Legal and Political Risks

Breaches of regulations, legislation or codes of conduct may have serious results for an entity. These risks include financial and other fines (even involving the entity shutdown) by having to spend resources and money in fighting against the litigation and saving the reputation. Thereby important areas include environmental legislation, health and safety, trade disruption, data protection, consumer protection and employment issues.

The codes of good governance are especially important instances of best practices and businesses must think about the risks of breaching provisions relating to objectivity and integrity and also control over the organization.

While the political risks are those risks that may influence the position of an organization by a political action. This type of risk related to country risk, the risk connected with undertaking some transactions, or having assets in any specific country.

2 – Financial Risks

Financial risk is that type of risk through which any organization may not able to run as a going concern entity. These risks include the risks relating to the structure of finance the organization has, we can say that the risk linked to the capital structure i.e. debt and equity, also whether an entity has enough long term capital base for the amount of trading the business doing. In order to control this type of risks organizations must use some strategies to limit risk of fraud and misuse of financial resources. However the long term involves the risk of currency rate, risk of interest rate also the risk of market. While short term risks involve liquidity risk and credit risk.

3 – Technological Risk

Technological risks include three types of risks;

I. Physical Damage Risks: In physical risks fire is the most dangerous hazard that may damage the computer systems because everyone knows the destruction of data is more costly than the destruction of hardware. Moreover, water is another hazard when it is related to technological matters. In some areas of the this world the natural risk of flooding may cause serious damages, for instance if the basements in such floody areas are the main sites of large computer installation the business can loose all the hardware as well as the soft data. So business must not consider the basements for computer installation. Similarly rains, winds, and storms can cause substantial damage to buildings. Electrical and lightening storms can play havoc with power supplies causing power failures coupled with power surges as services are restored.

II. Data and System Integrity Risks: These risks may be particularly significant because of the nature of computer operations. The risks involve human error such entering incorrect transactions, failing to correct errors, processing the wrong files and failing to follow the stated security measures. In this way possible technical errors include malfunctioning software or hardware and supporting equipment such as communication equipment, normal and emergency power supplies and air conditioning units.

III. Fraud Risks: Computer fraud generally includes the theft of founds by misusing the computer system. Input fraud is happened where data input is falsified; good instances are putting a non-existent employee on the salary file or a non-existent supplier on the purchase file. With the fraud of processing, a programmer or someone else who has broken into this part of the system may alter a program. And the output fraud includes documents being tampered with and control totals being altered or stolen. Checks are the most common document to be stolen, but other documents may be stolen to hide the other frauds.

4 – Health and Safety Risks

In any business health and safety risks involve loss of employees’ time because of injury and the risks of having to pay compensation or legal cost because of breaches. Health and safety risks can arise from:

  • Lack of health and safety policy due to increased legislation in this area this becoming less likely
  • Lack of emergency procedures because it is considered less likely
  • Failure to deal with the hazards often due to a failure to implement policies such as inspection of electrical equipment, labeling of hazards and training
  • Poor employee welfare is not just threats to health such as poor working environment or excessive exposure to VDUs, but also threats to quality from tired staff making mistakes
  • Generally poor health and safety culture

5 – Environmental Risks

Environmental risk is the risk of loss to the business arising out of the environmental effects of its operations. This risk is mostly higher with those businesses operating in farming, agriculture, transportation and chemical industry. These industries have the greatest direct effects on the environment and so face the most significant risks. However other factors may be significant. In the same way business located in such areas that are near to river may face increased risks of causing pollution. An important element of environmental risk is likely to be waste management, especially is waste materials are toxic.

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