Certified Management Accountant 2025 – 400 Free Practice Questions to Pass the Exam

Strategic risk pertains to the uncertainty that an organization faces in achieving its long-term goals and objectives. This type of risk arises from the decisions that management must make concerning the firm's direction, markets, product lines, competitive environment, and overall business strategy. In essence, strategic risk is tied to the choices made at the highest levels of management and the external factors influencing those choices.

For example, if a company's leadership decides to enter a new market, they face the risk that this market may not generate the expected revenue due to various unknown factors, including competitor actions or shifts in consumer preferences. The success or failure of such strategic initiatives can significantly impact the firm's ability to meet its financial targets and overall objectives.

In contrast, operational risk refers to risks arising from internal processes, systems, or personnel mistakes, often related to day-to-day operations, while hazard risk includes potential losses from unforeseen events such as natural disasters. Financial risk, on the other hand, pertains specifically to the uncertainties generated by financial markets or monetary instruments, which can affect the company's financial standing but do not directly address the broader strategic decisions impacting overall business goals.