Not only is risk everywhere on the map, so are the types of risk and associated definitions thereof. Risk: a concept that denotes the precise probability of specific eventualities (Wikipedia). Financial Risk: probability of loss in the methods used in financing a firm (Business Dictionary). Supply Chain Risk: the damage — assessed by probability of occurence — that is caused by an event within the company, within its supply chain, or its environment affecting the business processes of more than one company in the supply chain negatively (Kersten).
Fortunately, there’s a very simply actionable definition of risk that everyone can understand:
If you’re counting on it, it’s a risk.
This covers every type of risk you can think of.
- Production Risks
Machine Breakdowns: check.
You’re counting on the machine to work.
Supply Shortages: check.
You’re counting on parts and raw materials to be available when you need them.
You’re counting on having the operators you need, with the right skill sets and experience, when you need them.
- Communication Risks
Network Outages: check.
When you pick up the phone, you expect a dial-tone. When you send an e-mail, you expect it to leave your server.
Broken Channels: check.
When you issue an order, you expect it to be relayed.
- Business Model Risks
Disruptive Technology: check.
You expect that your product will continue to be in demand and viable in the marketplace.
Disruptive Business Model: check.
You expect that your pricing model is valid, and that you’ll be able to sell your products at a profit against competitors in the same ballpark.
- Environmental Risks
Natural Disasters: check.
You expect that an earthquake won’t level your plant tomorrow.
- Political Risks
Trade Barriers: check.
You expect that you can keep importing from your suppliers and keep exporting to your customers.
Civil Unrest: check.
You expect that your plants won’t be blockaded and that they won’t be attacked by a terrorist organization.
- Economic Risks
Currency Fluctuations: check.
You expect the currency exchange rate will stay within your predicted window.
Commodity Market Instability: check.
You expect prices won’t yo-yo out of control over your contract period or that your current strategy will be able to deal with yo-yo pricing.
- Internal Compliance Risks
Maverick Spending: check.
You expect your employees will buy off contracts using approved methodologies and that expected savings will be realized.
Contract Adherence: check.
You expect your employees will live up to supplier, customer, and partner commitments and SLAs.
- External Compliance Risks
Trade Documentation: check.
You expect that your partners will produce all of the necessary import and export documentation, and deliver it on time, to all of the appropriate customs and government agencies.
Regulatory Requirements: check.
You expect that your production facilities are complying with the RoHS, WEEE, and REACH directives.
Resource Shortages: check.
You expect the water and electricity to keep flowing.
This is also why it’s actionable. To identify risk using this definition, all you have to do is review every business activity and outline what you’re depending on AND assuming, and you have your list of risks. Then, you can prioritize the risks and begin working on the definition of your risk management plan.