Risk assessment is the process of identifying, analyzing, and evaluating potential risks that could negatively impact a business. This process helps organizations understand the likelihood of risks occurring and the potential consequences, allowing them to make informed decisions to mitigate or manage those risks.

Characteristics
– Identification of Risks: Recognizing potential risks that could affect the business, such as market fluctuations, operational issues, or regulatory changes.
– Analysis of Risks: Evaluating the likelihood and impact of identified risks, often using qualitative and quantitative methods.
– Prioritization: Ranking risks based on their potential impact and likelihood, helping businesses focus on the most critical threats.
– Mitigation Strategies: Developing plans to reduce or eliminate risks, including insurance, diversifying investments, or implementing new policies.

Examples
– Market Risk: A business may assess the risk of a downturn in the economy that could lead to decreased sales.
– Operational Risk: A company might evaluate the risk of supply chain disruptions due to natural disasters or political instability.
– Compliance Risk: A business could assess the risk of failing to comply with new regulations, which could result in fines or legal issues.
– Financial Risk: A firm may analyze the risk of fluctuating interest rates affecting loan repayments or investment returns.