1.Risk 2.Risk Cost 3.Risk Types Khawar Shahzad Jaffar ACCA, CPA
What is Risk? 
Risk is a concept. It is a measure of uncertainty (probabilities). In the business process, the uncertainty involves the achievement of organizational objectives. Risk may involve positive or negative consequences, although most positive consequences are known as opportunities, and most negative consequences are called threats or risk.
What is Risk?
Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).
Risk is based on two factors; Probability Expected
of occurrence
loss
What is Risk?
The effects of risk and uncertainty can result in good or bad consequences. Consequences can vary in sensitivity depending on a number of factors: The
assets at risk (Exposure)
The
type of threat
The
duration of consequences
The
effectiveness of controls in place
Cost of Risk
Greater risk usually implies greater cost.
Cost of risk can be divided into five components which are given below;
Expected Losses
Direct losses
Indirect losses
Loss of normal profit
Extra operating expenses
Higher cost of funds and foregone investment
Legal costs
Cost of Risk
Cost of Loss Control
Increase precautions
Reduced activity
Cost of Loss Financing
Retention and self-insurance
Insurance
Hedging
Other risk transfers
Cost of internal Risk Reduction
Diversification
Investment in information
Cost of Risk Cost
of Residual Uncertainty
Effects on shareholders
Effects on other stake holders
Cost Tradeoffs
The expected cost of direct/indirect losses and loss control cost
The cost of loss financing/internal risk reduction and the expected cost of indirect losses
The cost of loss financing/internal risk reduction and the cost of residual uncertainty
Risk Types
Risk types can broadly be categorized into; Macro Micro
Risk Levels, and
Risk Levels
Risk Types – Macro Level Systematic Risk 
Systematic risk is the risk that cannot be reduced or predicted in any manner and it is almost impossible to predict or protect yourself against this type of risk. Examples of this type of risk include interest rate increases or government legislation changes. The smartest way to account for this risk, is to simply acknowledge that this type of risk will occur and plan for your business to be affected by it.
Risk Types – Macro Level Unsystematic Risk 
Unsystematic risk is risk that is specific to an assets features and can usually be eliminated through a process called diversification . Examples of this type of risk include employee strikes or management decision changes.
Risk Types – Micro Level
Business / Income Risk
Liquidity Risk
Financial Risk
Exchange Rate Risk
Political / Country Risk
Market Risk / Portfolio Risk