5: Risk Management Flashcards
What is risk?
The possible variation in an outcome from what is expected to happen
The possibility that an event will occur and adversely effect the achievement of objectives
What are the three attitudes to risk? Or APPETITES?
Risk averse
Risk neutral
Risk seeker
What are the three types of risk?
Business risk
Financial risk
Operational risk
The four types of event risk?
Disaster
Regulatory
Reputation
Systematic
What is at the key at risk management?
Probability (likelihood)
X
Impact (consequence)
Also think about EXPOSURE and VOLATILITY
What are the four measures of central tendency?
Mean
Median
Mode
Expected values
What is the mean?
Dividing the sum of the values by the number of values
What is the median?
The middle set of values
Overcomes the problem of skewed distribution
What is the mode?
The value that occurs most often
What is expected values?
Long run average
What are the four steps in the risk management process?
Risk awareness and identification
Risk assessment and measurement
Risk response and control
Risk monitoring and reporting
What are the 5 techniques to identify risk?
PEST/SWOT
External advisors
Interviews/questionnaires
Internal audit
Brainstorming
What are the five types of loss?
Property loss
Liability loss
Personnel loss
Pecuniary loss
Interruption loss
What are the four options on a risk assessment map?
High impact/ high probability
- avoidance
High impact/ low probability
- transfer
Low impact/ high probability
- reduction
Low impact/ low probability
- accepted
Whats on the axis of a risk heat map?
X axis
- improbable
- remote
- occasional
- probable
- frequent
Y axis
- negligible
- low
- moderate
- significant
- catastrophic
What are the four risk reduction methods on the TARA model, in order or preference?
Avoidance
Reduction
Transfer/sharing
Acceptance/retention
What is ALARP?
As low as reasonably practicable
Risk is reduced to a level that is proportional to cost required to reduce the risk further
What are the three reasons risk monitoring is needed?
To monitor the effectiveness of the current RM process
To monitor whether the risk profile is changing
The corporate governance code requires listed companies to:
- determine the nature and extent of risks
- report risk management issues
- additional board disclosure
What is a crisis v a disaster?
Crisis is an unexpected event or significant disruption that threatens the wellbeing of a business
A disaster is when the business’s operations break down for some reason, leading to potential losses
What are the seven types of crisis?
Natural event
Industrial accident
Product service or failure
PR disaster
Business crisis
Management crisis
Legal/regulatory crisis
What does crisis management involve?
Contingency planning
Crisis prevention
What are the two axis to business resilience?
Axis 1: processes and functions to protect the organisation
- (specific functions)
Axis 2: general organisational characteristics driving resilience
- (general)
What are the two types of disaster?
A major crisis causing a breakdown
An event resulting in serious consequences
Create a disaster recovery plan!
Why do a standard deviation or coefficient of variation?
SD: how far away on average the data points are from the mean
CoV: dispersion of data points in a data series around the mean
- gives a sense of scale to SD
- percentage to aid comparison
Everything to determine how much RISK in comparison to the amount of RETUEN
What is the range?
The difference between the lowest and highest value in a set of data
How to calculate standard deviation?
- Calculate the mean
- Calculate the deviation (taking the mean away from each value)
- Calculate the variance (square all of the deviations, make a mean from those)
- Calculate the SD (square root the variance)
- Calculate the coefficient variation (standard deviation divided by the mean)
What are the key characteristics of a normal distribution frequency distribution?
Symmetrical and peaks in the centre
Mean is in the centre of the diagram
Curve is symmetrical to the mean. 50% above and 50% below
Mean, median and mode all the same
SD shows how far the values are spread out from the mean
Key percentages in normal distribution?
34% of values lie between mean and 1SD
47.5% values lie between mean and 2SD
49.9% values lie between mean and 3SD
More detail about event risk?
Disaster, regulatory, reputation, systematic
Includes any new regulatory requirements
Includes the failure of a supplier in the supply chain (systematic)
Business risk?
Any competitor on the market that could affect business
- includes product risk, which is getting a competitor
What’s a highly geared company?
Lots of borrowings
The higher the proportion of borrowings, the greater the financial risk
How is uncertainty judged?
If you are given the probabilities of different outcomes, there is no uncertainty!
What is risk exposure?
The measure of the way a business is faced by risks
What kind of risk does automated production increase?
Financial risk
4 ways to assess the scale of risk?
Probability
Impact
Volatility
Exposure
