1. Identifying Risk Flashcards
What is strategic risk?
Risk arising form the overall strategic positioning of the company in its environment
What type of risk is financial risk?
A strategic risk
What is operational risk?
Potential losses arising from normal day-to-day business operations
What is pure risk?
Risk where loss is the only possible outcome, related to events that are beyond the risk takers control
What is gross risk?
The inherent risk that exists if management take no action
What is net risk?
The residual risk which still exists given management’s actions or current strategies
What is business probity risk?
Arising from the unethical behaviour of an individual in a business process
What are the 6 main types of risk that are faced by companies and their IT sytems?
- Physical threats
- Virus infection
- Technical failure
- Infrastructure failure
- Human error
- Theft
What 4 additional risks do international operations face?
- Currency risk
- Cultural differences
- Transit risk
- Credit risk
What are political risks?
Risks faced by businesses due to the exercise of political power or instability of a country
What 6 approaches should be used to manage political risk?
- Use political risk advisory firm
- Develop relations with authorities
- Take out political risk insurance
- Understand the environment
- Profit share agreement with government
- Structure operations via joint ventures
What are the 3 main limitations of using EV?
- Not relevant for one off decisions are represent long run average
- Ignores spread of possible returns
- Relies of accuracy of probabilities
What is the value at risk?
The maximum loss that is acceptable over a period of time
