Risk Profile

DEFINITION of 'Risk Profile'

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.

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