What is Total Cost of Risk?

Total Cost of Risk is the sum of the costs arising from all classes of risk faced by an organization. Risks can generally be categorized into one of the following three classes:

• Operational Risk

  Operational Risk includes risks associated with an organization’s activities, processes, products, and services. Examples of operational risk include damage to or destruction of the organization’s physical assets; loss of its financial assets; damage to or destruction of supply sources for key raw materials, components, or services; injuries to employees or outside parties; damage to the property of outside parties including resulting consequential loss; damage to the environment; and employment decisions.

• Financial Risk

  Financial Risk includes risks associated with commodity price variability or commodity availability; costs of capital and borrowing; and customer defaults on credit obligations.

• Strategic Risk

  Strategic Risk includes issues of risk that can have a major impact on the overall viability of an organization. These include issues centering on reputation of the organization or its employees, loyalty to the organization of customers or clients; development of new products or services; meeting demands for existing products or services; pricing of the organization’s products or services.

Eustis Risk Management Resources focuses on mitigating the costs of an organization’s Operational Risk to reduce the Total Cost of Risk of the organization.