Political risk is when a government will unexpectedly change its rules or ways of operation in business. It can often be determined by the stability of the government and the presence of an independent judiciary and legal system. The relationship with other countries is also very important in determining the level of political risk involved in entering a new market.

ICRG compiles monthly data on a variety of political, financial and economic risk factors to calculate risk indices in each of these categories as well as a composite risk index. Five financial, thirteen political and six economic factors are used. Each factor is assigned a numerical rating within a specified range. The specified allowable range for each factor reflects the weight attributed to that factor. A higher score indicates lesser risk.