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Cost of risk is the cost of managing risk and incurring losses due to risk. It is a metric that can be calculated for a financial period or forecast for a future period. The following are common elements of cost of risk.Administration CostsThe costs of managing risk such as the budget of a risk management team.
Mitigation CostsThe costs of reducing risk. For example, a firm that buys specialized hardware and software to reduce information security risks.Risk Control CostsThe cost of operational processes designed to reduce risk such as credit checks that are run on customers.Transfer CostsThe cost of transferring risk using techniques such as insurance or financial instruments.
LossesLosses that occur because of a risk. For example, losses that occur when a customer fails to pay for delivered services is considered a loss due to credit risk.|
Type | | Definition | The cost of risk management, risk control, risk mitigation, risk transfer and losses due to risk. | Notes | Cost of risk can be forecasted using estimates such as a risk value. | Related Concepts | |
Risk Management
This is the complete list of articles we have written about risk management.
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A complete guide to risk analysis.
The common ways to model risk probability.
A definition of qualitative risk analysis with an example.
A definition of risk perception with examples.
The difference between a risk and a hazard with examples.
A list of threats for SWOT analysis.
The definition of what-if analysis with examples.
A list of common external factors.
A definition of risk exposure with example calculations.
An overview of the risk management process.
An overview of cascading failure and resilience.
An overview of business as usual.
A list of techniques for reducing risk.
The difference between risk mitigation and risk reduction.
A list of common risk controls.
A definition of risk value with example calculation.
The common types of risk impact.
A definition of risk communication with examples.
Overview of the steps in a risk management process.
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