13 types of business risks for companies to manage

1. Strategic risk

Strategic risk relates to issues that could affect a company's ability to execute against its strategic objectives and achieve its business goals. This type of risk also concerns an organization's competitive advantages in the market and internal or external factors that could diminish them.

Elements to consider for managing strategic risk include assessing the following organizational capabilities:

• Skills and stability of the senior executive and business management teams.
• Capacity to navigate business or market change -- i.e., change management.
• Ability to successfully launch new products and services.
• Resilience in the face of adverse circumstances.

Because strategic risk encompasses a broad array of issues, some risk management experts said many -- if not all -- of the risks detailed below could arguably fit into this one bucket.

2. Operational risk

A similarly expansive type of risk, operational risk involves anything that could affect an organization's ability to run its business operations effectively and efficiently, said Emily Frolick, delivery model transformation leader for risk services at KPMG US. This includes a company's processes, procedures, policies, people and systems.

"It can be a little bit of a catchall, but it's basically about the core operations of the company," said Tad Roselund, a managing director and senior partner at Boston Consulting Group, who works with clients on risk management and compliance initiatives. As a result, operational risk involves business continuity and resilience, he said.

Other business areas that often fall under operational risk include the following:

• Supply chains and third-party vendors.
• Environmental factors.
• Facilities.

It should be noted that some risk experts view these areas as separate risk categories. KPMG, for one, considers environmental and geopolitical risk significant enough to be a single risk type. Others view such items as standalone risks only for businesses that are particularly vulnerable to them.

Example of an industry-specific operational risk. The aviation industry has identified as a significant risk the potential for airplanes colliding with birds during takeoff and landing -- a unique risk that airlines and airports must mitigate to prevent possibly catastrophic losses.

3. Process risk

Although process risk is sometimes considered part of operational risk, it is frequently listed as a separate type. Process risk specifically relates to whether the various business processes that support a company's operations -- from core internal processes to digital workflows and supply chain functions -- are effective, efficient and resilient. If not, an organization needs to assess the downstream impacts that the process gaps could have and decide how to mitigate the resulting risks.

Example of process risk management. A food manufacturer looking to increase its market by selling nut-free products to customers with food allergies must first identify whether any nuts could inadvertently contaminate its new nut-free products during the production process and then assess the potential for such contamination. As with any risk, the manufacturer must decide whether to mitigate that risk, transfer it or accept it. In such an example, the manufacturer might decide that the consequences of contamination are too high to accept or transfer the risk, so it must therefore mitigate the risk by having its nut-free products made in a facility that produces nothing containing nuts.

4. Financial risk

All companies face financial risk involving business factors that could affect cash flow, profitability, balance sheets and even an organization's solvency. One metric that financial risk is not about is an organization's stock price, Roselund said. He explained that stock performance is an outcome, whether positive or negative, of how well a company manages its financial risk and other types of business risk it faces.

Examples of financial risk measurements. These include risk-specific measures, such as revenue at risk, value at risk (VaR), earnings at risk (EAR) and cash flow at risk (CFaR) as well as more general measures of financial health such as debt-to-equity ratio, interest coverage ratio, gross profit margin, net profit margin, burn rate and operating cash flow.

5. Compliance risk

Every company has regulatory requirements to meet. In addition, well-run companies establish a framework of governance policies and procedures to ensure that business operations meet internal standards and that business managers are accountable for adhering to the standards.

How well companies comply with regulatory and governance requirements can affect business performance. Organizations in highly regulated industries, such as financial services, face greater consequences when they fail to meet compliance tasks. A company's ability to anticipate regulatory mandates and manage its relationships with regulators can also impact its performance, KPMG's Frolick said.

All of this makes compliance risk a top-level issue for many companies. This category is sometimes referred to as regulatory and compliance risk or regulatory, compliance and governance risk. It is a key focus of governance, risk and compliance initiatives in organizations.

Examples of compliance risk in three key industries. A healthcare company that fails to meet the privacy standards mandated by HIPAA risks civil and criminal penalties. A financial services firm's failure to adhere to anti-money-laundering regulations risks hefty fines and reputational damage. A public company's failure to comply with the Sarbanes-Oxley Act risks penalties for both the company and its executives.

6. Legal risk

Similarly, every company has some amount of legal risk to manage, such as ensuring that business operations meet contractual obligations and abide by relevant laws. The following are some key areas where companies face legal risks:

• Product liability.
• Criminal liability by executives and employees.
• Import and export regulations.
• Data privacy and security laws.

Managing these risks requires companies to identify and understand the consequences of failing to meet their legal obligations.

Like other types of business risk, a company's exposure to legal risk varies based on multiple factors, such as the kind of products and services it provides.

Examples of industry-specific legal risks. A recreational company that offers high-adventure outings typically faces a greater chance of legal actions related to injured customers than a retail company would. A retailer with hundreds of vendors might have a higher likelihood of contractual disputes.

7. Macroeconomic risk

Some practitioners also list macroeconomic risk as its own category. That particularly makes sense nowadays, as global trade disputes, tariff policies and growing economic tensions between countries have created volatile business conditions.

Examples of present-day macroeconomic risks. These include higher-than-expected costs for materials imported to the U.S. due to newly enacted tariffs, an anticipated drop in consumer demand for products due to higher costs, and interest rates that remain higher than rates in recent years.

8. Human risk

Also called personnel risk or people risk, this is another type of risk that affects every business. All companies rely on people to operate and be successful. Consequently, companies face risks if they're unable to hire and keep enough people with the right skills to meet existing and anticipated business requirements. They also face risks if business conditions change and they have too many workers.

The behavior of people poses potential risks, too. For example, executives and other employees might engage in illegal, unethical or improper behavior on the job or not be competent in their position. Personal issues could also affect people's ability to do their jobs, as could medical problems, Roselund said.

Example of a key human capital risk. The risk of losing key employees -- which could entail the loss of leadership, institutional knowledge, business stability and even customers or clients who had personal relationships or an affinity for a departing worker -- is a common concern. To mitigate this risk, companies often implement strong talent retention strategies with competitive compensation, comprehensive employee engagement actions and appealing workplace programs aimed at limiting employee turnover.

9. Technology risk

Another universal risk category revolves around technology. A company's IT infrastructure should be assessed to determine whether and to what degree it creates risk -- for example, if IT systems and applications are aging, costly or not resilient enough. Risk is also involved when companies deploy new technologies, underinvest in tech and expand their technology ecosystems.

Frolick noted that digital transformation risk cuts both ways. A company undergoing digital transformation risks disrupting its operations, but one that decides to stick with older technology could be vulnerable to being disrupted by external digital innovators.

Example of a technology risk. AI is a significant technology risk that nearly all organizations are facing today. Organizations that are on the leading edge of using AI have a higher chance of making costly mistakes as they break new ground with the use of this technology. Organizations that opt for a slower pace of adoption, on the other hand, might find that their cautious approach leaves them unable to efficiently compete against those who integrated AI into their processes at a quicker clip.

10. Cybersecurity risk

Cybersecurity risk -- also referred to as cyber-risk -- deals with the potential for business issues due to a cyberattack that affects operations or to a security breach that results in the theft of company data. It's closely related to technology risk, but listing it as a standalone type of risk recognizes the significant costs and business damage that cybersecurity incidents can cause.

For example, IBM's "Cost of a Data Breach Report 2024," based on a study conducted by research firm Ponemon Institute, found that the average cost of breaches in 604 organizations worldwide reached $4.88 million in 2024, a 10% increase over the previous year, with cybersecurity analysts projecting these costs to accelerate in 2025.

KPMG groups cybersecurity and crime together as a combined risk category because so many security threats are the result of criminal acts. In addition to cyberattacks and data breaches, it encompasses illegal activities such as theft, fraud, embezzlement, money laundering and other financial crimes that can cause monetary and reputational harm to an organization, Frolick said.

Example of an emerging cybercrime risk. The threat of deepfake technology, which uses AI to create convincingly real video and audio of individuals, introduces a serious new risk, as demonstrated by an incident in 2024 where criminals scammed a finance worker at a Hong Kong-based multinational company into paying out $25 million by having a deepfake of the company's CFO ask for the money in a video conference call. News of that incident and reports of similar -- albeit less costly -- scams involving deepfakes have prompted risk professionals to instruct their cybersecurity teams to develop strategies to safeguard against this new type of cybercrime.

11. Data risk

Although some risk management consultants and practitioners include data security risk under cybersecurity risk, others now consider it to be its own category. They cite data's growing importance to business operations as the reason for making it a separate risk type that also involves data management and data governance issues.

The risks pertaining to data are multifold. Organizations incur risks when they don't have enough data or enough quality data for the analyses and intelligence programs they want to pursue. They also incur risks if they don't adequately secure their data, as it is then more likely to be leaked or breached in violation of data protection laws, making this a compliance risk as well. They could face financial risk, too, as maintaining too much data could drive up storage and data management costs that draw resources away from innovative data programs.

Example of an industry-specific data risk. Due to its weak data governance program, a retailer fails to maintain accurate customer information across its myriad systems. As a result, marketing campaigns cannot be personalized, leading to a lower-than-expected ROI on promotional efforts. Moreover, the retailer sent emails to customers who had opted out, violating GDPR regulations and resulting in both reputational damage and fines.

12. AI risk

AI risk is another type of risk that some consultants now separate from the broader category of technology risk and data risk. Their reasoning is that as the use of AI in business expands, companies must be more attentive to identifying and managing the risks that AI technology poses to their operations.

Risks associated with using AI include feeding low-quality data into AI models and not having a strong AI governance framework to guard against unintended biases and model drift that degrades performance. However, companies also face risks if they opt to limit or forgo their use of AI. For example, they might fall behind competitors that do use AI or miss out on possible business opportunities.

Example of an AI risk involving false or fabricated results. False AI outputs, also known as AI hallucinations, can be costly in both dollars and reputation. In critical sectors, such as in healthcare, they can endanger lives. A 2024 case involving an Air Canada chatbot that incorrectly promised a bereavement fare discount to a customer underscores the importance of ensuring AI accuracy. When Air Canada declined to give the customer the discounted price, saying it wasn't responsible for the chatbot's response, a tribunal ruled against the airline, ordering it to pay damages and tribunal fees.

13. Reputational risk

How well a business manages its risks can also affect its brand reputation. Some consultants, including Roselund, see reputational damage as an outcome of poorly managing other types of risks rather than a separate risk category. "Something has gone wrong and therefore your reputation is damaged," he said.

Others, such as KPMG, consider reputational risk a separate category. While reputational and brand issues are "derivative of how well you manage the other risks," said Frolick, companies can control their reputations by how they position themselves in the market and how well they align with customers' and business partners' expectations.

Example of reputational risk. The perception of electric car maker Tesla demonstrates how leadership behavior can affect brand reputation and sales. Many existing and would-be Tesla owners soured on CEO and co-founder Elon Musk due to his political activities, including his role in the Trump administration's Department of Government Efficiency actions. The downturn in leadership reputation coincided with Tesla's worst quarter for deliveries in nearly three years, with analysts citing leadership behavior as a major factor in the 13% decline.

Best practices for managing business risks

To successfully manage risk, an organization must start by identifying the types of risks that affect its business operations and then do a risk analysis to understand the potential impact of each one. This often entails the creation of a risk taxonomy that defines the risks faced by a company and a risk register, which documents how individual risks apply to the business for tracking and risk reporting purposes.

Business executives and risk managers should then use these documents to develop and implement controls for avoiding risks or mitigating them to an acceptable level, in keeping with the organization's risk appetite -- a measure of how much risk a company is willing to take to achieve its business goals. But risk management strategies need to be updated as business conditions and requirements change. At organizations with well-managed risk processes, a risk register "is very much a living document that is used within the core operations," Roselund said.

An effective risk management plan enables departments and business units to confidently navigate business situations, keeping aware of risks and how to deal with them as they arise. "You don't want to avoid risk at all costs because taking risks is how you grow," Roselund said. "But surprises are less good. You need to understand your risks, your controls and where your gaps are."

Editor's note: This article was updated by the author in 2025 to add business risk examples and new survey data.

Mary K. Pratt is an award-winning freelance journalist with a focus on covering enterprise IT and cybersecurity management.