Full Answer Section

Hazard Risk

• Focus: Potential for physical harm or damage to people, property, or the environment.
• Examples:
  • Natural disasters (earthquakes, floods, hurricanes)
  • Fires or explosions at a manufacturing facility.
  • Workplace accidents leading to employee injuries.
  • Data breaches or cyberattacks.

3. Financial Risk

• Focus: Threats to the organization’s financial health and stability.
• Examples:
  • Market downturns that reduce the value of investments.
  • Failure to manage cash flow effectively.
  • Customers not paying their bills (credit risk).
  • Fluctuations in interest rates or foreign exchange rates.

4. Operational Risk

• Focus: Potential for disruptions or losses due to internal process failures, human error, or system breakdowns.
• Examples:
  • A power outage that shuts down operations.
  • Supply chain disruptions that prevent you from getting materials.
  • A key employee leaving the company and taking critical knowledge with them.
  • Fraud or theft by employees.

Key Differences

• Scope: Strategic risks are the broadest, impacting the entire organization. Operational risks are often more localized.
• Nature: Hazard risks are often external and unpredictable. Operational risks can often be controlled internally.
• Impact: Financial risks directly affect the bottom line. Hazard risks can have both financial and human costs.

Important Note: These risk categories are not always mutually exclusive. A single event can involve multiple types of risk. For example, a cyberattack could be both a hazard risk (data breach) and a financial risk (loss of money).