5: Introduction to risk management Flashcards
What is risk?
The possible variation in an outcome and what is expected to happen
What is uncertainty?
The inability to predict the outcome from an activity due to lack of information
What three things can risk be broken down into?
- Variability
- Expectation
- Outcomes
What is meant by upside risk and downside risk?
Upside risk:
- possibility that an event will occur and positively affect the objectives
Downside risk:
- possibility of occurence being adverse
Name the risks faced by businesses in general (5)
There exists a risk that:
- trade conditions might be poor
- inadequate controls exist
- business may face financial nature
- ESG becoming more and more significant
- larger the business, the more varied the risk
What is the critical success factor (CSF)?
‘Those product features that are particularly valued by a group of customers and, therefore where the organisation must excel to outperform the competition’
What is risk appetite?
The extent to which a business is prepared to take on risks in order to achieve its objectives
What are the three attitudes to risk?
- A risk averse attitude
- A risk neutral attitude
- A risk seeking attitude
What are the three types of risk?
Business risk:
- arise from the nature of the business
- strategy, enterprise and product risks
Financial risk:
- can be uncontrollable or uncontrollable
Operational risk:
- arise from things just going wrong
Whare the sustainability and climate related risks?
- Physical risks
- Transition risks
- Reputational risks
- Finance risk
- Governance risks
- Regulatory risks
What is an operational risk?
The risk that actual losses, incurred becuase of inadequate or failed internal processes, people and systems, or because of external events differ from expected losses
What is the difference between population and sample?
Population:
- the entire set of data
Sample:
- small sample taken from inside population
What are the mathematical central tendencies?
- Median
- Mode
- Mean
- Expected value
What is the expected value?
E[X] = x1p1 + x2p2 + … + x_np_n
What is mathematical deviation?
For each value in a data set, deviation refers to how far from the mean that value is
(X - Xbar)
What is mathematical variance?
The average of the squared deviations in the values in a data set from the mean of that data
What is standard deviation written mathematically?
Sqrt variance
What is the coefficient of variation written mathematically?
Standard deviation / mean
What is risk management?
The identification, analysis and economic control of risks which threaten the assets or earning capacity of a business
When is risk management neccessary?
- Legal requirements
- May be required by licensing authorities
- Financial organisations may require risk management
What are the steps involved in risk management? (4)
- Awarness and identification
- Analysis: assessment and measurement
- Response and control
- avoidance
- sharing
- acceptance
- reduction - Monitoring and reporting
What are the two approaches to identifying risks and what are the differences between them?
A top-down approach:
- led by senior management
- linked to businesses’ CSFs
A bottom-up approach:
- involves a group of employees with an expert in risk management
- identify risk level upwards
What are the five categories of loss?
- Property loss
- Liability loss
- Personnel loss
- Pecuniary loss
- Interruption loss
What is risk assessment and risk measurement?
Risk assessment:
- assessing implications a risk might have on a business
Risk measurement:
- assessing probability of a risk occurring
