7.4 Risk, reputation and strategy Flashcards
At its simplest, risk can be defined as any circumstance with more than one possible o________.
Outcome
“Risk” refers to a range of understandable and quantifiable outcomes, whereas “uncertainty” suggests that although we can perceive a variety of outcomes, they are not q_________.
Quantifiable
Risk appetite is the balance between ‘risk aversion’ and ‘risk s_______’.
Seeking
What is “risk capacity”?
The maximum level of risk that can be taken and often that is required to be taken to achieve strategic goals.
What is “risk tolerance”?
The level of risk willing to be accepted by a risk-taker.
The problem with risk tolerance matrices is that they are often designed by individual managers will a particular desired outcome in mind, and so they may be b_______.
Biased
Evans (2012) suggests that the concept of risk intelligence operates on a spectrum between complete i________ and certain k_________.
ignorance
knowledge
List five types of risk.
Financial risk Operational risk Competition risk Environment risk People risk
In financial risk, what is a highly geared entity?
An entity will a high ratio of debt to equity.
One major factor in operational risk is r_________ damage.
Reputational
Give an example of a corporate event that caused major reputation damage.
Enron/Arthur Anderson fraud Deepwater Horizon spill (BP) Starbucks corporation tax cover up Volkswagen emissions falsification KFC chicken shortage (logistics issue)
What is competition risk?
The threat of loss of market share to a competitor.
How have Tesco/Lidl/Sainsbury’s mitigating loss of market share to Lidl/Aldi?
Advertising campaigns asserting superior quality over their rivals.
What is competition risk?
The threat of loss of market share to a competitor.
How have Tesco/Lidl/Sainsbury’s mitigating loss of market share to Lidl/Aldi?
Advertising campaigns asserting superior quality over their rivals.
What is the most common type of environmental risk?
Reputational risk
What type of risk represents tax-avoidance?
Environment risk (i.e the tax environment)
What is people risk?
Risks due to people, including press leaks, reputational issues, whistleblowers etc.
In many organisations, the transition and measurement of risk is designed around the use of k__ __________ _______
key performance indicators
What four requirements are there to use KPIs to measure risk?
A closely defined set of measures
Accurate trusted data to ensure integrity
Measures that are strategically relevant
Indicators with a forward impact - i.e. something can be done about the measure
What is the name for a formal framework to allow an organisation to list, categorise and weigh risk?
A risk register.
Some organisations will use a r____ m_____ to analyse the severity of a risk against a probability.
risk matrix
What are the advantages and disadvantages of risk matrices?
Advantages: easy to develop and understand.
Disadvantage: lack of timeframe and no indication of what underlying data was used to generate the matrix.
What is Principle O of the UK Corporate Governance Code (2018)
The Board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.
It is generally accepted that internal risk controls must include three dimensions. What are these?
1 Identification
2 Evaluation
3 Mitigation
Reputation can be defined as “the b______ or o________ that are generally held about someone or something.
beliefs or opinions
List 7 types of risk that could cause reputational damage.
7 options:
Natural Operational People Governance Human Commercial blindness
