A risk taxonomy provides common language and structure for categorizing organizational risks, facilitating aggregation, comparison, and communication across business units. Well-designed taxonomies balance comprehensiveness with usability, typically organizing risks by source, type, or impact into two to four hierarchical levels. Financial institutions might categorize operational risks into internal fraud, external fraud, employment practices, clients/products, physical assets, business disruption, and execution failures per Basel standards. Consistent taxonomy enables trend analysis, benchmarking, and portfolio views of risk concentrations. Taxonomies should evolve as new risk types emerge and business models change.