What might be an example of direct costs in risk assessments?

Direct costs in risk assessments refer to the tangible financial impacts that result from a risk event occurring. The example that best illustrates direct costs is financial losses from stolen goods and labor expenses.

When a theft occurs within a company, the immediate financial consequence is the loss of the goods that were stolen, which can reflect a significant outflow of resources. Additionally, the labor expenses involved in addressing the incident—such as the cost of hiring temporary staff to cover shortages or overtime pay for existing employees who may need to work extra hours to manage the aftermath of the theft—also constitute direct costs. These costs are quantifiable and can be directly linked to the incident, unlike other options that mention indirect consequences or costs that are more abstract in nature, such as media coverage or public relations challenges. Understanding how direct costs manifest in a risk event is crucial for organizations to plan effective risk mitigation strategies and financial forecasting.