There are many ways of assessing business risks.
Append below is one sample of a formal way of assessing business risk based on the value and weighing and adding together to get the results. The greater the rating,the higher the overall risk of that activity.
(Source:CIMA’s guideline on Internal Control)
INHERENT RISK
| Factor | Values | Weight | |
| A | Size of Unit: In terms of operational budget,capital employed,volume and value of output | 1=Insignificant 2=Small 3=Medium 4=Large | 0.5 |
| B | Nature of Output: In terms of unit value and convertibility eg transactions | 1=Minimal 2=Low risk 3=Medium risk 4=High risk | 0.5 |
| C | Complexity of Operation | 1- Simple to 4- Extremely complex | 0.5 |
| D | Convertibility of Assets: In terms of liquidity,desirability,portability,etc | 1=Minimal 2=Low risk 3=Medium risk 4=High risk | 0.5 |
| E | Extent of Computerization | 1=Minimal use 2=Moderate use 3=Larger or complex system 4=Total reliance on systems | 0.25 |
| F | Sensitivity to Public and Political Exposure | 1=Not sensitive 2=Some sensitivity 3=Significant 4=High profile | 0.25 |
QUALITY OF CONTROL
| Factor | Values | Weight | |
| G | Adequacy of Control ( as at last review) | 1=Adequate 2=Minor reservations 3=Major reservations 4=No controls ( or not previously reviewed) | 1.0 |
| H | Managerial Effectiveness ( including competency and integrity of managerial and supervisory personnel) | 1-Totally effective; 2-Minor reservations 3=Major reservations 4=Ineffective ( or not previously reviewed) | 0.5 |
| I | Change Factor since last review (including changes to accounting system/procedure;changes in key personnel,high labor turnover, rapid growth pressure on management to meet objectives) | 1-No change 2-Minor change 3-Moderate change 4-Significant change | 0.5 |
| J | Elapsed Time Since Last Review | 1- <1 year 2-1-2 years 3-2-3 years 4- >3 years | 0.5 |
FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four,Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.Also author to another very popular free educational accounting cum finance blog:http://basiccollegeaccounting.com under the branding of College Accounting Coach.
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