Related Guides

Risk

Risk Analysis

Risks

Key Concepts

Risks

53 Types of Risk

John Spacey, updated on March 22, 2021

Risk is the potential for a loss due to an action or inaction. It is a fundamental aspect of all things that is driven by uncertainty. All endeavor is surrounded in risk including business, transport, sports, recreation, culture and social interaction. As such, identifying and managing risk is a fundamental component of decision making that comes up on a daily basis. The following are common types of risk.

Artificial Intelligence Risks

A special category of technology risk associated with technologies that learn and self-improve.

Budget Risk

The potential to go over budget. In many cases, that chance that you will be under budget is considered a positive risk.

Commodity Risk

Price fluctuations of basic commodities such as rice is a type of economic risk for many businesses and investments.

Competitive Risk

The potential for competitors to outperform you or take actions that cause you losses. For example, a competitor may institute a price war that causes your revenue and margins to drop.

Compliance Risk

The risk that you will be deemed to have violated a law or regulation.

Concentration Risk

The potential for loses due to overfocus on a particular type of investment. For example, an investment portfolio that is 80% invested in a single industry or a bank that has lent too much money to a single customer.

Contract Risk

The chance that a counterparty will fail to meet the terms of a contract.

Country Risk

Overexposure of a business or investment portfolio to a single country. For example, a manufacturing business that depends on parts from a country that is known for political instability.

Credit Risk

The chance that a customer or counterparty will fail to pay what they owe you.

Exchange Rate Risk

Foreign exchange fluctuations that result in losses to a business or investment.

Dispute Risk

The potential for a dispute with a regulator, customer, partner, employee or member of the community.

Dread Risk

Risks that trigger emotions such as fear. In many cases, people seek to minimize dread risks at any cost.

Economic Risk

The chance that global or regional economic conditions will impact a business or individual.

Existential Risk

The potential for an event or process that results in significant reductions in quality of life on a global basis.

Financial Risk

A general term for risks related to money and assets.

Force Majeure

A term for major negative events such as a war, hurricane, earthquake or volcanic eruption.

Health And Safety Risk

The potential for harm to come to people.

Infinite Risk

A theoretical type of risk that has infinite impact.

Inflation Risk

The potential for the declining value of money to damage an economy, business or personal assets. Often used as an example of why inaction is often a risk. If you try to avoid risk by sticking money under your mattress, you still face inflation risk.

Infrastructure Risk

The risk that basic services such as an electric grid will fail.

Innovation Risk

A special class of risk associated with experimentation and aggressive programs of change.

Integration Risk

The chance that things won't work together well. Integration of organizations, business processes and technologies tends to be a particularly risk prone type of endeavor.

Interest Rate Risk

Interest rate fluctuations that lead to losses. For example, a high interest rate can place strain on business models in a capital intensive industry.

Investment Risk

A broad category of risk that includes anything that can cause an investment to decline in value.

Legal Risk

The risk of losses due to regulatory or legal actions.

Liquidity Risk

The risk that you will run out of cash. Assets that are difficult to sell such as real estate generally represent a greater liquidity risk than investments such as a stock with consistently high volume that can be sold quickly.

Model Risk

Risk related to financial models for investment such as asset valuation models. In some cases, a model may work against one set of market conditions but fail under stress.

Operations Risk

The potential for failures of an organization's core business processes.

Political Risk

Risks related to political change or instability. Politics affects things like taxes, business regulations and interest rates that impact industries, businesses and individuals.

Process Risk

Failure of a business process such as a human error or technology glitch.

Procurement Risk

Procurement is the process of securing goods and services that is prone to a number of risks including fraud, quality and delivery risks.

Program Risk

Risks related to a program of related projects such as the potential for failed dependencies or integration.

Project Risk

Risks related to a project. In many industries, projects have a high rate of failure due to a number of common risks.

Quality Risk

The potential that you will fail to meet a set of quality goals.

Recession Risk

The chance that a period of economic contraction will result in losses to an investment, business or individual.

Refinancing Risk

The possibility that it will be difficult for a borrower to continue to find new sources of financing when existing financing runs out.

Regulatory Risk

Changes to laws and regulations that negatively affect a business or investment.

Reputational Risk

The term reputational risk is typically applied to the potential for a major negative event that threatens your reputation. Such risks may threaten the survival of a business and are typically related to financial mismanagement, corporate governance, information security, violation of laws or environmental practices.

Residual Risk

The risk that remains after you take action to treat risk.

Resource Risk

Related to a lack of resources such as financing, skilled labor or inputs such as electricity.

Seasonal Risk

An overexposure to a single season such as a ski resort that generates most of its revenue in a three month period. Leaves a business exposed to factors such as weather.

Secondary Risk

Risk that results from attempts to reduce, transfer or avoid risk.

Security Risk

Risks related to physical and information security.

Settlement Risk

Settlement risk is the potential that a trading partner will fail to deliver funds, securities or assets as required by a transaction. Specific to banking and investment banking.

Strategic Risk

Risks related to the strategic environment including factors such as competition, regulation and economy.

Strategy Risk

Risk related to a particular strategy.

Systemic Risk

A potential for a failure of the global financial system.

Tactical Risk

Risks related to a tactical action.

Taxation Risk

The potential for changes to tax laws or interpretations to result in losses to a business or individual.

Technology Risk

A broad category of risk related to technology including information technology and information security.

Upside Risk

The chance that an investment or asset will increase in value more than you expect.

Volatility Risk

Volatility is a measure of how much prices of an asset or investment tend to change over time. Volatility risk is the chance that the volatility of a particular investment will be more than you expect.