An external risk is a type of risk that is outside of your control and cannot be influenced or managed by you or your organization. These risks may be caused by external factors such as natural disasters, market fluctuations, or changes in government regulations. Because external risks are beyond your control, they can often be difficult to predict or mitigate. As a result, it is important for organizations to have contingency plans in place to help them respond to and manage external risks effectively.
Disaster Risk
The insurance industry defines external risk as the risk of disasters that are beyond the control of a policy holder such as earthquakes, wildfires, floods and pandemics.
Act of God
Another term for disasters of a non-human cause such as a volcanic eruption.
Force Majeure
Force majeure is a major adverse event such as a disaster. This potentially includes human caused disasters such as a war but definitions vary by jurisdiction.
Environmental Hazards
The potential for an environmental disaster such as very low air quality that threatens the health and safety of large populations.
Infrastructure Risk
The potential for major infrastructure disruptions beyond your control such as an event that causes large scale internet outages.
Political Risk
The potential for political disruptions such as a revolution, strike or protest.
Economic Risk
Large economic risks such as the potential for a recession or depression. Predictable economic risks such as exchange rate fluctuations aren’t considered external as these can be mitigated.
Project Risk
Projects often define external risks as anything beyond the capacity of the project to mitigate. For example, a merger or acquisition might derail a project but be well beyond the control of the project.
External Factors
External factors are elements outside of an organization that can impact its strategy and decision making. These factors can include competition, markets, customers, technological change, economic conditions, politics, regulations, and social and cultural change. Organizations often use frameworks like SWOT analysis to identify and categorize external factors as threats and opportunities. This can help organizations understand the impact of these external factors on their operations and make informed decisions. By considering external factors, organizations can develop strategies that anticipate and adapt to changes in their environment.
| Attitudes | Barriers to Entry (new competition) |
| Business Models | Business Risks |
| Capital (e.g. new machines) | Consumer Devices |
| Consumer Trends | Costs |
| Customer Experience | Customer Needs |
| Customer Perceptions | Demand |
| Demographics | Design Practices |
| Direct Competition | Disasters |
| Distribution (e.g. ecommerce) | Economic Problems |
| Efficiency (e.g. energy efficiency of new vehicles) | Elections |
| Environment (e.g. air quality) | Environmental Regulations |
| Exchange Rates | Factor Markets (input supply) |
| Financial Conditions | Fiscal Policy (government spending) |
| Government Policy | Growth Rates (industry or economy) |
| Indirect Competition | Information Security (threats and vulnerabilities) |
| Infrastructure | Interest Rates |
| Interests | Know-how (of competition) |
| Labor Regulations | Lifestyles |
| Market Structure | New Materials |
| Operating Models | Opinions |
| Political Stability | Practices |
| Price Competition | Productivity Rates |
| Protests | Psychographics |
| Research & Development | Revenue Models |
| Social Structure | Strike Actions |
| Styles | Subcultures |
| Subsidies | Supply Chain Disruptions |
| Taxes | Technology Culture |
| Technology Platforms | Trade Barriers |
| Trade Wars | Values |
