Risk Factors

Risk factors are key to Enterprise Risk Management (ERM). Afterall, risk management isn’t about building a bigger risk register.

It’s about spotting the conditions that make bad outcomes more likely — the risk factors — and managing them before they turn into incidents.

Here’s a practical way to think about ERM risk factors, with examples and how to identify them 👇
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What are “risk factors” in ERM?

Risk factors are the underlying drivers or conditions that increase exposure to risk. They’re often the “because of…” in a strong risk statement.

A simple format:
Because of (risk factor) → there is a risk that (event) → resulting in (impact)

Example:
Because of single-region hosting and limited failover testing (risk factors), there is a risk that a regional outage causes downtime (event), resulting in SLA penalties, churn, and reputational damage (impact).

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Common ERM risk factor categories (with examples)

Strategic

• Market shifts, disruption, over-reliance on one growth bet
  Example: investing heavily in a channel customers are abandoning.

Financial

• Liquidity pressure, customer concentration, FX/interest rate exposure
  Example: 30% of revenue depends on one customer → earnings cliff risk.

Operational

• Single points of failure, inconsistent processes, supplier fragility
  Example: one supplier provides a critical component → production halt risk.

Technology & Cyber

• Legacy systems, weak IAM (MFA gaps), poor observability, third-party exposure
  Example: shared admin accounts → tougher detection and accountability.

Compliance / Legal

• Regulatory change, weak contract governance, privacy gaps
  Example: SLA breaches → penalties + churn + disputes.

People & Culture

• Incentives misaligned with risk outcomes, skills gaps, weak speak-up culture
  Example: sales comp rewards bookings not collectability → bad debt rises.

External / Geopolitical / Environmental

• Extreme weather, sanctions, macro volatility
  Example: flood-prone warehouse location → recurring losses and delays.

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How organisations identify risk factors (what works in practice)

✅ Start from objectives
Map risks to what “must go right” for the strategy to work.

✅ Run structured workshops (cross-functional)
Ask: Where are we relying on one person/system/vendor? Where do we bypass controls to hit targets? What assumptions does the plan depend on?

✅ Process mapping + control testing
Manual handoffs, spreadsheet controls, unclear approvals = risk factors hiding in plain sight.

✅ Use data signals & KRIs (Key Risk Indicators)
Leading indicators (e.g., patch latency, DSO, incident MTTR, supplier OTIF) help you see deterioration early.

✅ Scenario testing
“What if our top supplier fails for 60 days?” is a great way to uncover dependencies.

✅ Learn from incidents and near-misses
Root cause analysis turns “what happened?” into “why it keeps happening”.

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The point of ERM (in one line)

If you can identify and measure the risk factors, you can manage risk proactively — not just report it.

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