Risks that are associated with an organization's ability to develop and maintain effective management practices is called

• A. Strategic Risks
• B. Institutional Risks
• C. Operational Risks
• D. Compliance Risks

Answer: (B)

Institutional risk covers the threats that come from the organization’s ability to design, implement, and sustain its governance, policies, and management systems. When a company struggles to develop and maintain effective management practices, it undermines how decisions are made, how responsibilities are assigned, and how controls are put in place, all of which are core to institutional strength. This type of risk sits at the level of structure and governance, rather than at the level of strategic aims, day-to-day operations, or regulatory compliance. For example, weak governance can lead to inconsistent policy enforcement, unclear accountability, and gaps in internal controls, which accurately reflects institutional risk. By comparison, strategic risk relates to pursuing objectives, operational risk to daily processes and systems, and compliance risk to adhering to laws and regulations, none of which specifically captures the organization’s capacity to develop and sustain effective management practices.