Response to: According to Zeldea (2019) the definition of systemic risk is risks that arise from disturbances that are strong enough to work their way through the system and threaten public confidence of the stability of the financial systems. Systemic risks are more aligned to broad market factors and are investment portfolio risks; systemic risks are not based on individual investments (Unsystemic Risk, 2021).
Unsystemic risks are risks specific to an industry; unsystematic risks are also called specific, diversifiable, or residual risks (Unsystemic Risk, 2021). Unsystemic risks is the uncertainty that is inherent in a company or industry investment (Unsystemic Risk, 2021). An example of unsystematic risks are business, financial, operational, strategic, and legal and regulatory risks (Unsystemic Risk, 2021).
Risk planning requires determining the impact and probability of the risk. In the initial onset of risk determination it is important to determine if the risk is a systemic risk that aligns to broad market factors or an unsystematic risk that align specifically to the industry. The determination of systemic or unsystemic is insight into the impact and probability of the risk.
Every company has risks association to either systemic or unsystemic. Economic upturns or downturns impact every business. The political climate, changes in accounting practices, business taxes are impactful. In addition, business, financial, operational, strategic, legal and regulatory risks are risk categories that every company considers in planning.
The decision to plan for risks is proactive and leads to greater outcomes and profitability. Implications of not planning for risks can negatively impact the profitability of the business.
Unsystemic Risk(2021). https://www.investopedia.com/terms/u/unsystematicrisk.asp