6.5 Creating value through risk

Question 1

Ultimately the main objective of an effective risk management framework is to do what?

Answer 1

Make the organisation more valuable.

Question 2

What is meant by “strategic risk taking”

Answer 2

A willingness to make strategic business decisions that may lead to an increase in its total value.

Question 3

Give an example of strategic risk taking that paid off.

Answer 3

In 2012, Facebook purchased Instagram at $1bn while it was a loss making business. Instagram is now worth $100bn.

Question 4

Ashby identifies four factors holding organisations back from pursuing strategic risks. What is meant by “corporate culture”?

Answer 4

Management fails to support strategic risk taking initiatives.

Question 5

Ashby identifies four factors holding organisations back from pursuing strategic risks. What is meant by “lack of risk prioritisation”?

Answer 5

Organisations place a higher priority on managing day to day risk and miss the bigger picture.

Question 6

Ashby identifies four factors holding organisations back from pursuing strategic risks. What is meant by “failure to perform adequate due diligence”?

Answer 6

Organisations fail to properly conduct risk/benefit analysis that would make management and boards comfortable about taking strategic risks.

Question 7

Ashby identifies four factors holding organisations back from pursuing strategic risks. What is meant by “lack of designated risk manager”?

Answer 7

No manager to stay on top of emerging trends and navigate different strategic risk taking ideas throughout the organisation.

Question 8

Excessive risk taking is often linked to corporate culture through “risk attitude”. What does this term mean?

Answer 8

A chosen state of mind or response to a single decision or an action that could result in more than one potential positive or negative outcomme.

Question 9

Which organisational failure provides a useful example of how corporate arrogance and excessive risk taking can lead to problems?

Answer 9

Enron - extensive fraud, insider trading and money laundering.

Question 10

Whenever boards have a knowledge gap, they should explore different resources to fill it. How might they achieve this?

Answer 10

Utilise organisational resources

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