Risk Criteria are objective, quantifiable standards that represent an opinion, typically by a regulator, of the amount of risk that is tolerable/ acceptable. In most circumstances, risk-related criteria are used in the area of banking, insurance, and investment. In certain activities such as corporate finance, risk-based assessments are used. In business decisions, the risk-based analysis may be applied to selecting and allocating resources among different options.
The use of risk criteria requires agencies to develop and maintain internal records that include both the strengths and weaknesses of various business and operational activities. This facilitates the exchange of information among stakeholders and managers by allowing risks to be shared and the degree to which they are mitigated or controlled.
Numerical risk criteria also provide a dynamic means for identifying changes in specific areas that could affect company operations or finances. The evaluation of risk occurs at multiple levels and involves multiple decision-makers.