302 - Risk management Flashcards
Risk
A circumstance or factor that may have a significant negative impact on the operations or profitability of a given business, can result from internal or external conditions, can be expressed as ‘uncertainty’
Examples of Risk:
Natural disasters, failure of equipment/technology, employee error, supply problems, economic factors, legal challenges, public relations, product failures
The 4 key types of risk
Financial risk (bankruptcy), Operational risk (break down of machinery), Strategic risk (a new competitor in the market), Compliance risk (response to the introduction of new legislation)
Risk assessment
The identification of hazards that could negatively impact a businesses ability to operate, they help to identify and provide measures, processes, and controls to reduce the impact of these risks to business operations.
What happens in a risk assessment
1) Identification and analysis of risks
2) A measurement of the likelihood of the risks occurring
3) An assessment of potential impacts on the business
4) Deciding what action can be taken to eliminate or reduce risk
Importance of a risk assessment
They are a legal requirement, they consider health and safety risks, can be costly if they fail to have necessary controls in place so is much needed.
Insurable risks
Quantifiable, can be taken out again at things to over the breakdown of equipment
Uninsurable risk
Hard to quantify, examples: reputational, regulatory, trade secret, political, pandemics
Contingency plan
A course of action designed to help an organisation respond effectively to a significant future event or situation that may happen, planning for unwanted or unlikely events
The aim of a contingency plan
To minimise the impact and plant the response to it if it ever happens, it identifies weak points in any business, weak points can be improved and made more resilient
Activities in a contingency plan
Having contingency funds, alternative production arrangements, allocating responsibilities to managers/employees, dealing with public relations
When contingency planning the business needs:
The strategy for recovery that is tried and tested, someone to be in charge of the contingency plan, might be several people coordinating the plan within different departments or division
Crisis management
Required when a significant unforeseen event threatens the business, it empowers the business to manage the response after the incident occurs
How businesses use contingency plans
Contingency funds, alternative production arrangements, allocating responsibilities to managers/employees, dealing with public relations in the event of a crisis
How businesses respond to risks
Insurance, contingency plans, loyalty cards, multiple suppliers, preventative measure such as sprinkler systems
Importance of risk management
Damage can be minimised, helps to maintain staff morale, protects against potential losses, insurance is essential
