Enterprise Risk Management (ERM) Jargon

Risk Appetite – The level of risk an organization is willing to accept. Example: "Our risk appetite for new investments is moderate."

Residual Risk – The remaining risk after controls are implemented. Example: "Even with security systems, some residual risk remains."

Inherent Risk – The risk present before controls are applied. Example: "The inherent risk in online banking is fraud."

Risk Capacity – The maximum risk the organization can bear. Example: "Our risk capacity is constrained by limited capital reserves."

Risk Tolerance – The acceptable deviation from risk appetite. Example: "We have a low tolerance for operational risks."

Risk Mitigation – Actions taken to reduce or manage risk. Example: "We implemented firewalls as part of risk mitigation."

Black Swan Event – Unpredictable, high-impact events. Example: "The COVID-19 pandemic was a classic black swan event."

Heat Map – A visual tool to rank risks by impact and likelihood. Example: "The heat map shows data breach as a high-risk issue."

Risk Register – A record of identified risks and mitigation plans. Example: "The risk register is updated quarterly."

Key Risk Indicator (KRI) – Metrics that signal potential risks. Example: "A decline in sales is a key risk indicator for market shifts."

Risk Owner – The person accountable for managing specific risks. Example: "The CFO is the risk owner for financial risks."

Risk Velocity – The speed at which a risk could impact the organization. Example: "Cyber risks have high velocity and require immediate action."

Risk Aggregation – Combining risks to assess overall exposure. Example: "Risk aggregation showed significant vulnerability in operations."

Scenario Analysis – Examining possible future risk events. Example: "We conducted scenario analysis for different market downturns."

Monte Carlo Simulation – A statistical technique to model risk variability. Example: "Monte Carlo simulations helped assess financial risk outcomes."

Bow-Tie Analysis – Visualizing risk pathways and controls. Example: "The bow-tie analysis illustrated our cybersecurity risks."

Stress Testing – Simulating extreme conditions to assess risk impact. Example: "Our stress testing showed resilience to interest rate hikes."

Risk Transfer – Shifting risk to another party, often via insurance. Example: "We transferred our product liability risk to an insurer."

Risk Hedging – Using financial instruments to offset risks. Example: "Hedging strategies reduced our exposure to currency fluctuations."

Third-Party Risk – Risks arising from outsourcing or suppliers. Example: "We assessed third-party risks for our cloud service provider."

Reputational Risk – The potential harm to a company’s image. Example: "Negative media coverage posed a significant reputational risk."

Risk Culture – The organization's attitude toward risk management. Example: "A strong risk culture ensures proactive risk identification."

Risk Portfolio – A comprehensive view of all organizational risks. Example: "Our risk portfolio is balanced across market and operational risks."

Risk-Adjusted Return – Adjusting returns based on risk exposure. Example: "We focus on maximizing risk-adjusted returns."

Quantitative Risk Assessment – Using numerical methods to evaluate risks. Example: "We performed a quantitative risk assessment of market volatility."

Risk Governance – The framework for managing and overseeing risk. Example: "Effective risk governance is central to our ERM strategy."

Risk Aggregation – Combining multiple risks for an overall view. Example: "Risk aggregation highlighted vulnerabilities in our supply chain."

Risk Escalation – Reporting a risk that exceeds acceptable levels. Example: "The cyber breach required immediate risk escalation."

Risk Horizon – The timeframe over which risks may materialize. Example: "We assess our risk horizon for short- and long-term threats."

Risk Scenario Planning – Developing responses to potential future risks. Example: "Scenario planning helped prepare for regulatory changes."

Systemic Risk – Risks that affect an entire market or sector. Example: "Financial crises often lead to systemic risk across industries."

Operational Risk – Risks from day-to-day operations. Example: "Our operational risks include system downtime and human error."

Compliance Risk – Risks arising from regulatory violations. Example: "Failure to adhere to GDPR poses a compliance risk."

Credit Risk – The risk of default from borrowers or counterparties. Example: "We monitor credit risk in our customer lending portfolio."

Liquidity Risk – The risk of not having enough cash to meet obligations. Example: "Liquidity risk became a concern during the economic downturn."

Market Risk – Risk from fluctuations in market prices or rates. Example: "Market risk increased due to volatile commodity prices."

Strategic Risk – Risk from poor business decisions or strategy. Example: "Entering the wrong market can create significant strategic risk."

Concentration Risk – Over-reliance on a single client, vendor, or market. Example: "Our over-reliance on one supplier creates concentration risk."

Emerging Risk – Newly developing risks not fully understood. Example: "AI adoption brings emerging risks related to data privacy."

Risk-Based Auditing – Focusing audit resources on higher-risk areas. Example: "Risk-based auditing prioritizes IT security reviews."

Insurance Risk – Risks that can be transferred to an insurer. Example: "We insured against property damage to mitigate insurance risk."

Risk Appetite Statement – Formal documentation of risk thresholds. Example: "Our risk appetite statement clarifies acceptable risk levels."

Top-Down Risk Assessment – Starting risk assessment at the executive level. Example: "Top-down risk assessments align with company strategy."

Bottom-Up Risk Assessment – Risk identification starting at the operational level. Example: "Bottom-up risk assessment highlights on-the-ground issues."

Integrated Risk Management (IRM) – A holistic approach to risk. Example: "IRM ensures all risks are managed across departments."

Risk Maturity – The level of development in risk management practices. Example: "Our organization has reached a high level of risk maturity."

Risk Scenario Analysis – Predicting outcomes for potential risk events. Example: "We conducted risk scenario analysis for cybersecurity breaches."

Residual Impact – The potential effect of a risk after mitigation. Example: "Even after controls, the residual impact of fraud remains high."

Mitigation Effectiveness – The degree to which controls reduce risk. Example: "Mitigation effectiveness for the new policy is under review."

Risk Transparency – Clear visibility into risks across the organization. Example: "Improved risk transparency helps in better decision-making."

Reverse Stress Testing – Testing systems for extreme breakdown scenarios. Example: "We used reverse stress testing to explore worst-case scenarios."

Crisis Management Plan – A plan for managing high-impact risks. Example: "The crisis management plan helped during the natural disaster."

Enterprise Risk Assessment (ERA) – A comprehensive risk evaluation across all business functions. Example: "Our ERA identified strategic and operational risk areas."

Dynamic Risk Assessment – Continuously adjusting risk evaluations. Example: "We use dynamic risk assessment to respond to market changes."

Risk Cascading – The impact of one risk leading to other risks. Example: "Supply chain disruptions can cascade into financial risks."

Proximity Risk – Risks that are likely to occur in the near term. Example: "Our proximity risks include upcoming regulatory changes."

Risk Vulnerability – The likelihood of being affected by a particular risk. Example: "Our organization is vulnerable to economic downturns."

Risk Contingency Plan – A fallback strategy in case risks materialize. Example: "We activated our contingency plan during the supply chain disruption."

Key Control Indicator (KCI) – Metrics to assess the effectiveness of risk controls. Example: "KCIs are regularly monitored to ensure cybersecurity controls are effective."

Operational Resilience – The ability to continue operations despite disruptions. Example: "Operational resilience ensures business continuity during crises."

Incident Management – The process of handling risk events. Example: "Our incident management process was triggered by the data breach."

Risk Aggregation Tool – Software to consolidate and analyze risks. Example: "Our risk aggregation tool integrates data from all departments."

Control Self-Assessment (CSA) – An internal review of control effectiveness. Example: "Employees participate in the CSA to evaluate departmental controls."

ERM Framework – A structured approach for identifying, assessing, and managing risks. Example: "Our ERM framework aligns with COSO standards."

Risk Convergence – When different risks coalesce, creating larger threats. Example: "Risk convergence between cyber and reputational risks is a concern."

End-to-End Risk Management – Risk oversight throughout the entire value chain. Example: "We applied end-to-end risk management from supply to delivery."

Mitigation Strategy – The approach to reduce or control risks. Example: "Our mitigation strategy includes diversifying suppliers."

Risk Decomposition – Breaking down complex risks into smaller components. Example: "We decomposed market risk into currency, interest rate, and equity risks."

Loss Event Database – A collection of past risk events to inform future mitigation. Example: "The loss event database helped us avoid repeating past mistakes."

Tail Risk – The risk of extreme losses at the far ends of probability distribution. Example: "We model tail risks to prepare for unlikely but severe events."

Causal Risk Analysis – Identifying root causes of risks. Example: "Causal analysis showed that system failures were due to outdated software."

Risk Differentiation – Prioritizing risks based on impact and likelihood. Example: "Risk differentiation helps allocate resources effectively."

Moral Hazard – Risk arising when one party takes risks knowing others will bear the consequences. Example: "Insurance sometimes creates moral hazard by reducing incentive for caution."

Scenario Probability – The likelihood of a particular risk scenario occurring. Example: "We assigned scenario probabilities to each potential market disruption."

Resilience Testing – Assessing how well systems can withstand stress or disruption. Example: "We conducted resilience testing on our IT infrastructure to prepare for cyberattacks."

These terms help professionals navigate the complexities of Enterprise Risk Management and effectively address potential threats across various organizational areas.