What is Risk Management Accounting?
In terms of business accounting, risk management is the systematic process of identifying, assessing, and addressing risks that could affect a company's ability to achieve its objectives. The overall aim of this process is to support organizational goals by anticipating and managing uncertainties that could impact performance. Organizations encounter different types of risks in the course of normal operations, and understanding these can help guide better decisions and reduce potential negative outcomes.
These can include:
- Equipment breakdown or malfunction
- Employee liability
- Product or service liability
- Defaults on loans owned by the company
- Losses on investments
In accounting coursework, students can learn that some risk is acceptable. This concept is known as risk tolerance, where tradeoffs must be weighed when deciding what types of risk should be eliminated, mitigated, transferred, or accepted in support of objectives.1
To help identify acceptable risk, risk management practices call for risks to be organized into categories so they can be more effectively identified, assessed, and addressed.
Some of these categories include:
Financial Risk: This category includes risks that may affect a company's financial stability, such as exposure to market fluctuations, credit issues, investment losses, or other financial decisions that can influence organizational performance.
Human Risk: This type of risk is associated with the human element of the organization. It can include risks related to employee error, misconduct, or the loss of key personnel that may disrupt operations.
Environmental (Hazard) Risk: This category includes external events that are generally outside a company's control, such as natural disasters, severe weather, or power outages. While organizations cannot prevent these events, they may reduce potential impacts through contingency planning and emergency preparedness.
Physical (Operational/Hazard) Risk: This refers to risks involving physical assets, including damage to land, buildings, equipment, or other tangible resources that support business activities.
Connecting Risk Management Concepts to Your Accounting Education Goals
As you explore risk management accounting, think about what you want to be able to do with this knowledge, whether that's aiming to strengthen your analytical skills, understanding how businesses plan for uncertainty or expanding the types of accounting topics you feel comfortable discussing. Building familiarity with risk categories and risk tolerance can support your academic growth as you continue learning and setting new goals for yourself.
If you're interested in studying risk management and other accounting topics, explore AIU's accounting degree program today!
What Is Risk Management & Why Is It Important? Harvard Business School Online, October 24, 2023 https://online.hbs.edu/blog/post/risk-management (last visited 3/2/2026).
1AIU cannot guarantee employment, salary or career advancement. Not all programs are available to residents of all states. REQ2200960 3/2026