Since risk is a term which is so broad and multi-faceted, it cannot be defined in one way, and so in order to get readers familiar with risk, many divisions are elaborated. One of the most important challenges is to classify risk into systematic and unsystematic, which is presented in the chart below:
This division was proposed by Kulpa in 1928, and defines the systematic risk as the risk which is determined by external factors and a given person or object has no influence on its occurrence. In looking at systematic risk, we should consider that it should be understood mainly as factors beyond anyone’s control, such as weather conditions, inflation, tax system, interest rates, and economic situations. It is impossible to completely eliminate this type of risk because so many things are beyond our control, and while we may see some warnings in advance, we can do nothing or little to stop it. In the case of unsystematic risk all factors that come from a person or a subject itself are included. Here the characteristic is that all those factors can be influenced and there is a possibility to control these factors and the outcome. Here, one can include such elements as management and financial performance of an economic subject.