Fundamentals of Risk Management

Risk assessment
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Table 14.2 presents a set of questions that can be used to develop a riskiness index 
for an organization. The table uses the structure of the FIRM risk scorecard as a means 
of categorizing risks. By using the riskiness index, an organization should be able to 
identify the level of risk faced by its finances, infrastructure, reputation and the level 
of risk that it faces in the marketplace.
Having completed the riskiness index, the organization can then seek additional 
controls to reduce the level of risk. The main focus of risk management is then simply 
to reduce the level of riskiness within the organization without affecting its strategy, 
tactics, operations or compliance (STOC). The upside of risk then becomes that the 
organization can follow the desired STOC at the lowest level of risk that is reason-
ably and cost-effectively achievable.
The level of risk identified by the riskiness index represents the risk exposure of
the organization. The board can then compare this level of risk exposure with
the risk capacity of the organization and the attitude of the board towards risk.
TAbLE 
14.2
Riskiness index
Allocate a score of between 0 and 5 to each component (in accordance with
the key at the end of the table) of the generic example of the FIRM risk scorecard
to determine the level of risk within the organization, project, operation or location 
being evaluated.
Financial component of the FirM risk scorecard
index
Description
 Score
1.1
Lack of availability (or unacceptable cost) of adequate 
funds to fulfil the strategic plans
1.2
Insufficiently robust procedures for correct allocation of 
funds for strategic investment
1.3
Inadequate internal financial control environment to 
prevent fraud and control credit risks
1.4
Inadequate funds to meet historical liabilities (including 
pensions) and meet future anticipated liabilities
TOTAL for the financial component

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