What is it?
After a firm establishes its risk appetite, it should assemble an inventory of all known risks. This process is called risk mapping, and it is the next logical step in the risk management process. This robust approach systematically considers any risk with a known (or potential) cash impact on the firm.
Every type of risk (i.e., market risk, credit risk, liquidity risk, operational risk, legal and regulatory risk, business and strategic risk, and reputation risk) is considered.
Example of Risk Mapping
Consider an example of a firm with a known commodity risk exposure in its manufacturing process. They may be exposed to the price of steel. Futures contracts are readily available for copper, but they will have to know precisely where, when and how much steel must be hedged effectively.