58 Risk Examples
John Spacey, updated on June 29, 2019
A risk is a potential for a loss. It is an inescapable aspect of business that is a central consideration in decision making, strategy, planning, projects and day-to-day operations. Risk is managed by a process of identifying, treating and monitoring potential losses. The following are common types of risk each with an illustrative example.
Issue ClearingA project fails when political infighting is distracting to the project team. Minor requirements clarifications become large scale issues that run for months.
BudgetA software developer estimates a task will take 3 days that ends up taking 60 days.
Scope CreepBroad and conflicting interpretations of scope cause a project to run overbudget.
Resistance to ChangeInsiders at a firm fear that a new technology will make their jobs more difficult and passively resist its implementation.
IntegrationIntegration of technical components fails requiring a redesign.
ResourcesThe primary architect for a project suddenly quits.
ContractA technology vendor fails to meet the terms of a contract resulting in downtime for critical systems.
DisputesA dispute with a partner causes distractions, negative behavior and a work slowdown.
Project FacilitiesA project assumes that office space will be available for a project team. In reality, the firm is completely out of space with a 3 month wait for desks and meeting rooms used as work space.
DependenciesA cloud platform upgrade is delayed 4 months, causing a crisis for a variety of software projects built on the new technology.
SkillsA machine breaks down when the only person who knows how to fix it is on extended sick leave.
DesignA website redesign causes customer complaints to spike 300% due to usability issues.
ArchitectureThe architecture delivered for a project is incompatible with the non-functional requirement that a platform be highly resilient with five nines uptime.
OperationsAn assembly line is shut down for hours due to a power outage and failure of backup power.
Health & SafetyEmployees on a business trip in a foreign country get into an accident driving a rental car.
Benefit ShortfallA new product fails on the market due to poor product differentiation in a crowded market.
Exchange RatesA firm in the United States that exports most of its products experiences declining margins due to a rising US dollar.
PoliticalA factory in an East Asian country is disrupted for weeks due to political protests that shutdown ports.
LegalA legal dispute with a large supplier causes reputational damage, legal costs and potential legal penalties.
QualityA mobile device gets poor reviews due to durability issues. Sales stall and inventory begins to build as retailers and customers return product.
ProcurementA company is developing a robotic arm and has passed the design and prototyping phase. In procurement they discover that a component part will cost $1000 due to supply shortages. The business case is invalidated as it had assumed the part could be procured for $60.
SupplierA supplier fails to deliver critical ingredients shutting down production at a cookie factory for several days.
RegulatoryA telecom firm makes it difficult for customers to cancel their accounts with intentionally long waiting times for customer service. Industry regulators receive a large number of complaints and step in to investigate the firm.
Information SecurityA security incident brings down the patient records and administrative systems at a hospital, jeopardizing patient care.
Reputational DamageA company that is faking environmental compliance reports is exposed by a whistleblower.
InfrastructureA city's water infrastructure allows large amounts of waste water to flow into its water source when it rains hard. A local newspaper points out that a number of unhealthy chemicals are present in the city's tap water after each hard rain.
PartnersA partner that is critical to your supply chain suddenly and unexpectedly goes bankrupt and ceases operations.
FacilitiesA fire makes your head office location inaccessible for more than a month.
FinancialA firm takes out a large floating rate loan to buy back its own stock. The interest rate increases substantially over the next five years, causing ballooning interest expenses. At the same time, the stock price declines making the buy backs look ill advised.
InvestingAn investor purchases a stock because it has a low PE. The investor is unaware that the company is in a cyclical industry that is in a state of rapid decline. The firm is highly leveraged and soon announces that it is in talks with creditors to restructure debt. The stock declines by a significant percentage.
Risk of RuinAn investor leverages themselves by borrowing money and using it to buy leveraged investment instruments. A macro economic event sends stocks down resulting in complete loss of the investors capital.
LiquidityA firm makes overly optimistic financial projections that fail to materialize. A large debt payment comes due that they can not cover. The missed payment triggers a damaged reputation and a variety of creditor actions that threaten the firm's ability to continue operations.
MarketAn investor purchases stock in a firm after a through investigation. The firm reports solid earnings but its price declines due to a market downturn that lasts several months. The stock price doesn't recover for three years.
ComplianceA firm is deemed to be in violation of consumer protection laws due to its aggressive sales tactics.
CreditA customer fails to pay what they owe you.
Concentration RiskA bank lends a large sum to a handful of firms in a single industry. When the industry collapses, the bank faces a significant loss.
Counterparty RiskAn bank collapses and fails to meet its contractual obligations to its counterparties such as payments require by derivatives contracts.
EconomicA small business owner opens a high-end restaurant. A month later there is a recession and customers start going to cheaper spots.
InflationA retiree purchases 10 year government bonds at a 2% yield and inflation jumps to 4%.
ModelAn hedge fund develops a model for algorithmic trading. The model works well under certain conditions. However, the model is flawed and suddenly incurs large losses when market conditions turn.
SystemicThe largest bank in a country experiences a large scale information security incident resulting in a large number of unauthorized transactions. It's systems are down for days resulting in widespread financial instability and a market crash. Confidence in the country's financial system is threatened.
TaxationA tax ruling results in a significant punitive fine and back taxes for a firm.
StrategyAn automotive firm spends significant sums to enter a new industry only to fail to establish competitive parity.
TacticsA large technology firm acquires an innovative startup in a rush to beat competitors to their technology. They over pay and rush due diligence only to find their technology is mostly smoke and mirrors.
WeatherA ski resort suffers when January is unseasonably warm resulting in rain and slush.
SeasonalA fashion retailer achieves 50% of its sales in the run up to Christmas. They launch a fall-winter line that is out of touch with fashion trends in the season resulting in disappointing sales.
Business As UsualAn energy company is being acquired by a larger firm. Employees are worried about their future and executives are excited about compensation related to the acquisition. They fail to continue business as usual and products fall behind while inventories build. The acquisition is unexpected terminated and the firm is left in complete disarray.
Human ErrorA poorly designed aircraft maintenance procedure fails to account for tools after each maintenance. A tool is left in an engine causing it to cease up just before takeoff.
Passive RiskAn energy company continues with a status-quo strategy despite obvious signs of change in their industry. Return on invested capital declines for a decade before investors aggressively demand a strategy change.
RefinancingA real estate investment company has a $1 billion dollar debt with a ten year term. When the debt comes due, the market for credit has dried up and the firm is unable to refinance it. They are forced to quickly sell real estate at a loss to achieve basic liquidity.
TechnologyA firm invests in a complete modernization of its core systems only to see the launch disrupt operations because the technology doesn't properly support the company's de facto business processes. The project is eventually recognized as an expensive failure.
Machine BiasesA bank implements artificial intelligence to approve or reject applications for credit products. The firm monitors a handful of metrics but no one at the company fully understands how the technology makes its decisions. Months later, customer complaints lead the company to discover that the artificial intelligence has rejected all applications from an entire state out of an apparent machine bias. A whistleblower publicizes the failure to the press.
CompetitionA local taxi service experiences declining business when a city opens up new train lines.
InnovationA window company that hasn't changed their products in 30 years is suddenly faced with smart windows and products that offer passive heating and cooling benefits.
Unintended ConsequencesA packaged food company adds a supplier to diversify its supply chain only to find later that supplied ingredients contain banned chemicals. The firm suffers severe reputational damage.
Secondary RiskA homeowner buys flood insurance only to find that their insurance company goes out of business due to a large flood.
Cascading FailureA high-speed rail system schedules high capacity trains minutes apart. Each train requires resources such as lines and platforms. When a single train has a mechanical problem it reverberates throughout the system causing widespread delays.
Force MajeureA hurricane disrupts power to a city's essential services.
RisksThis is the complete list of articles we have written about risks.
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A list of common business risks. The four things that can be done about risk.
A metric for measuring risk management.The potential that you'll achieve too much of a good thing.
Any risk that people have a strong aversion too.The definition of risk taking with examples. The two main factors in modeling a risk. A definition of calculated risk with an example.
How to calculate relative risk with examples.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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