Risk Profile

What is a 'Risk Profile'

A risk profile is an evaluation of an individual or organization's willingness to take risks, as well as the threats to which an organization is exposed. A risk profile identifies:

1. The acceptable level of risk an individual or corporation is prepared to accept. A corporation's risk profile attempts to determine how the corporation's willingness to take risk (or aversion to risk) will affect its overall decision-making strategy.

2. The risks and threats faced by an organization. The risk profile may include the probability of resulting negative effects, and an outline of the potential costs and level of disruption for each risk.

BREAKING DOWN 'Risk Profile'

In general, the greater the risk associated with any investment, the greater the return required. Either risk profile - whether used to describe the willingness to accept risk or an evaluation of the risks to which an entity is exposed - can be expressed in graphical form. Risk is often measured in terms of risk probability - the likelihood that a risk will occur and risk impact - a measure of the consequences (such as project costs and schedule) if the risk occurs. Investors, for example, can evaluate the risk to which a portfolio is exposed and make buy and sell decisions based on this risk and their willingness to accept risk.

RELATED TERMS
  1. Accepting Risk

    A risk management method used in the business or investment field. ...
  2. Country Risk

    A collection of risks associated with investing in a foreign ...
  3. Risk Financing

    The determination of how an organization will pay for loss events ...
  4. Risk Lover

    An investor who is willing to take on additional risk for an ...
  5. Specific Risk

    Risk that affects a very small number of assets. Specific risk, ...
  6. Operational Risk

    A form of risk that summarizes the risks a company or firm undertakes ...
Related Articles
  1. Professionals

    Risk Management Framework (RMF): An Overview

    A company must identify the type of risks it is taking, as well as measure, report on, and set systems in place to manage and limit, those risks.
  2. Active Trading Fundamentals

    Matching Investing Risk Tolerance To Personality

    Understanding risk tolerance is crucial to the advisor/client relationship and any good investment policy statement.
  3. Entrepreneurship

    Why Companies Need Risk Management

    Implementing risk management strategies can save an entire organization from failure. Is yours up to snuff?
  4. Investing Basics

    Understanding Risk Averse Investing

    Risk averse describes a low level of risk an investor is willing to accept on his investments. An investor who is risk averse prefers little risk and is willing to accept a lower return because ...
  5. Professionals

    The Risk Premium

    CFA Level 1 - The Risk Premium. This topic covers risk premium, which is a component of required rate of return. Examines business, financial, liquidity and political risk.
  6. Professionals

    Responding to Risks

    Responding to Risks
  7. Retirement

    Risk and Diversification: Different Types of Risk

    Let's take a look at the two basic types of risk: Systematic Risk - Systematic risk influences a large number of assets. A significant political event, for example, could affect several of the ...
  8. Professionals

    Types of Investment Risks

    FINRA Series 6: Section 9 Types of Investment Risks. This section explains different types of risks, exchange rate risk, Interest Rate Risk, Business Risk, Credit Risk, Taxability Risk, call ...
  9. Insurance

    The Importance of Healthcare Risk Management

    Risk management is especially important in healthcare because human lives might be on the line. Here are some strategies to map out a plan.
  10. Professionals

    Facebook Can Help You Get Hired … Or Fired

    It's not just your friends who can find your information - potential employers may visit as well.
RELATED FAQS
  1. How are risk profiles and speculation related?

    Learn more about risk profiles and speculation, why speculators should assess their risk profiles and how risk profiles and ... Read Answer >>
  2. How do companies identify and manage business risk?

    Learn what risks businesses can be exposed to during any phase of the business life cycle, and how these risk can be identified ... Read Answer >>
  3. How do I find out my own risk tolerance?

    Learn why risking capital can be risky business, how much risk can you afford and how to determine the right amount of risk ... Read Answer >>
  4. What are the primary sources of market risk?

    Learn about market risk and the four primary sources of market risk including equity, interest rate, foreign exchange and ... Read Answer >>
  5. What are some examples of risk management techniques?

    Understand what risk management is in business and why it is a necessary component of ongoing business planning, and review ... Read Answer >>
  6. What is the difference between market risk and country risk?

    Learn about market risk and country risk, some examples of each and the main difference between these two types of risks. Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center