Which risk arises from events outside a company's control, such as natural disasters, pandemics, or economic fluctuations?

Which risk arises from events outside a company's control, such as natural disasters, pandemics, or economic fluctuations?

• A. Operational Risk
• B. External Risk
• C. Strategic Risk
• D. Reputational Risk

Answer: (B)

External risk is about threats that come from forces outside the organization. Natural disasters, pandemics, and broad economic fluctuations originate in the wider environment, not from the company’s own actions, so they can disrupt operations, supply chains, markets, and regulatory conditions regardless of internal controls. Because the driving factor is outside the firm, the typical response focuses on resilience and preparedness—scenario planning, diversification, and robust contingency plans to lessen exposure when these external events occur. Operational risk, by contrast, stems from internal processes, people, and systems failing or performing poorly, while strategic risk relates to long-term goals and the choices a company makes to pursue its strategy. Reputational risk deals with how stakeholders perceive the company, which can be influenced by external events but is defined by perceptions rather than the external event itself.

External risk is about threats that come from forces outside the organization. Natural disasters, pandemics, and broad economic fluctuations originate in the wider environment, not from the company’s own actions, so they can disrupt operations, supply chains, markets, and regulatory conditions regardless of internal controls. Because the driving factor is outside the firm, the typical response focuses on resilience and preparedness—scenario planning, diversification, and robust contingency plans to lessen exposure when these external events occur.

Operational risk, by contrast, stems from internal processes, people, and systems failing or performing poorly, while strategic risk relates to long-term goals and the choices a company makes to pursue its strategy. Reputational risk deals with how stakeholders perceive the company, which can be influenced by external events but is defined by perceptions rather than the external event itself.