Page 67 - CISSO_Prep_ Guide

Risk is a measurable level of the potential impact on an asset
due to some event, whether the event is accidental or intentional,
regardless of the source, and dependent on the value of the
entity or asset.

Risk Management is the science of managing risk in a cost-
effective, justifiable manner. Risk management is comprised of
three significant elements: Risk Assessment; Risk Response;
and Risk Monitoring.

Risk
Risk is a function of the business. Risk is an integral part of
managing the opportunities and threats that an organization faces.
Without managing and accepting a certain level of risk, an
organization has few opportunities to earn a profit or expand.
However, uncertainty also places the organization in jeopardy of
failure and economic collapse!
A bank uses the opportunity to lend money to make a profit.
However, giving money to people with excellent credit ratings is
a low-risk transaction and may only provide a relatively flat rate
of return. If the bank tries to lend money at a high-interest rate to
a good client, then the client may go elsewhere to borrow money.
If a client with a mediocre credit rating tries to borrow money, the
bank may be able to charge a higher interest rate. This allows the
bank to make more profit on the money it lends out, but it also
presents a higher level of risk that the client with a less than ideal
credit rating may not be able to repay the loan. In that case, the
bank may lose the money it lent out. In cases where a client has
abysmal credit, the bank may choose not to loan money to the
client at all. That means that the bank is not at risk of losing the