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What is Passive Risk?

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Passive risk is a potential for losses due to inaction. Risk is commonly associated with action but can occur from inaction as well. For example, a firm may face competitive risks if they don't take action to innovate.
It tends to be difficult to manage passive risk because the things that you're not doing at a particular point in time is more or less infinite. Nevertheless, this type of analysis does have value as passive risks can have just as great a probability and impact as an active risk. It is often possible to identify significant passive risks by brainstorming or comparing your strategies to a competitor or peer.
Overview: Passive Risk
Type
Business Risk
Definition
A potential for loss that occurs due to inaction.
Example
A city at particular risk of earthquakes that takes no action to improve urban planning, building codes and emergency services to prevent loss of life.
Related Concepts
Positive Risk
Risk Tolerance

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