It is human nature to name, label, and categorize. Every home, school, wood shop, museum, or business contains labels and categories for organizing specific items. Remember those baseball cards? That butterfly collection? Or the way you used to label your notebooks at school? Labels and categories help to develop a connection and sense of familiarity with new things, ideas, or concepts. They also help to organize thoughts around a common, familiar theme.

So it goes with risk. It is very helpful to categorize risks in business, to organize them so that solutions can work more effectively. While many business owners have created their own names for specific risks, the risk management profession has developed a set of formal categories, which will be introduced in this chapter.