What does cost of risk consist of?

The cost of risk consists of the total expenses associated with managing and mitigating risks within an organization. It typically includes direct costs like insurance premiums and loss payouts, as well as indirect costs such as administrative expenses and potential losses from unanticipated events. Additionally, it encompasses the costs of risk management strategies, including training, compliance, and technology investments aimed at reducing risk exposure. Overall, it reflects the financial impact of both expected and unexpected risks on an organization's performance.