Risk is a reality for companies and business owners regardless of the industry sector or size of the company. Every business and organization faces the risk of unexpected, harmful events that can cost the company money or cause it to permanently shut down.
In layman’s terms, a “Risk Universe” is the list of risks an organization faces or might face, arranged in order of their seriousness and frequency, along with the decision as to how the company wants to manage those risks.
The risk universe will continuously serve as guidelines for people (risk department) managing the risk day in – day out. The risk universe over time needs to be regularly updated based on the input of the day-to-day situations and the management of risk as time changes.
NB: The risk universe is clearly different from one industry to another i.e. what an organization in the banking industry will face will be quite different from what will be faced by an organization in the manufacturing or hospitality industry.
There are internal and external factors that affect your risk universe as such situational awareness is very important i.e. know what is happening around the organization (Events; internal & external the organization); and consolidate these prior to plotting a Risk Universe.
Lastly, the reality of any business is summarized as “No risk – No reward”, but on the other side of this is that too much risk can lead to business/corporate failure. This is where effective risk management comes into play as it allows you to strike a balance between taking risks and reducing them.