Chapter 1

Question 1

1.1: Identify the key risks that the following stakeholder groups will wish to have managed effectively:
* creditors
* customers
* employees

Answer 1

Creditors are primarily exposed to the risk that an organisation will default on its loan repayments. This will mean a loss of some or all of the entire loan amount, plus the loss of interest payments.

Customers face three possible risks – the risk of injury as a result of their use of products or services, the failure of a
product or service (such as a breakdown) and the loss of a guarantee or warranty. Guarantees and warranties may be lost if an organisation goes bankrupt.

Employees face health-and-safety-related risks, plus the loss of their economic livelihood in the event that an organisation becomes bankrupt or has to make stuff redundant due to unforeseen losses.

Question 3

1.3: Explain why the existence of asymmetric information may require risk-management regulation

Answer 3

Asymmetric information between the organisation and its stakeholders may mean that stakeholders are less able to
assess the level of risk that they are being exposed to by the organisation (such as the level of risk associated with
being an employee or consumer). Stakeholders may be exposed to excessive amounts of risk because they cannot
properly price the cost of risk into their relationship with the firm (such as their salary or the price they pay for a product
or service).

Question 4

1.4: Identify the reasons why international environmental risk-management regulation is needed

Answer 4

International environmental risk-management regulation is needed to help ensure that environmental risk events in one country do not affect stakeholders in other nations.

Events such as air, river or maritime pollution can quickly spread across national borders. Issues such as excessive
CO2 production are proven to cause global warming – a major international problem that requires co-ordinated risk management regulation.

Furthermore, a level playing field should be created so that companies that do not have to adhere to stricter regulation
cannot undercut the ones that do, thus introducing unfair competition.

Question 5

1.5: Why is an international standard on risk management needed?

Answer 5

An international standard primarily helps to share good risk-management practice from around the globe. An international standard is also needed because organisational stakeholders may come from around the world, and because
organisations are becoming more international.