Volume Risk

From Open Risk Manual

Definition

Volume Risk is the risk that product origination (sales) volumes will materially deviate from the planned / budgeted / expected amounts due to external or internal factors. The volume metric may be referencing the number of transactions, the total size of transactions etc.

Volume risk is one of the core components of Business Risk (Revenue Risk), the another being Price Risk (or margin risk).

Causes

Volume risk can be both due to internal and external factors.

  • Internal factors include the ability of the business line to execute the business plan (human capital, infrastructure)
  • External factors comprise primarily of the competitive landscape

When considering the competitive landscape it is useful to separate the overall market volume growth / decline as a separate risk factor from the firm's market share

Issues and Challenges

Formal modelling of business risk (and its components) is in a rather nascent stage. It is not one of the recognized regulatory risk types that attract capital requirements.

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