Chapter 1 - Identifying Risk Flashcards
2 main categories of risk
- Strategic - position of company in its environment e.g. financial risk
- Operational - normal business e.g. systems/PPE/human capital
Product Risk
Success of product different to expected, linked to reputation risk
Commodity Risk
Fluctuations in commodity prices
Market Risk
Adverse change in value of asset
Political Risk
Any politically motivated interference in business activities
- home govn
- host govn
- local govn
- illegitimate authority e.g. crime gang/trade union
Hostility : govn, local people, suppliers
Social Trends
Changes in society make business obsolete
Technological Risk
Change in technology render products obsolete
Industry Specific Risk
Only relate to particular industry
Competitor Related Risk
Arsing from actions of competitors
Financial Risk
Financial conditions worse than expected e.g. interest rates, foreign exchange
Financing Risk
Not able to raise finance
Fraud Risk
Fraud by employees
Ethical Risk
Policies/employees viewed as unethical
Business Probity Risk
Unethical behaviour of individual e.g. leaking confidential information
Environmental Risk
Impact on natural environment
Information Systems Risk
IT systems inadequate e.g. viruses/data protection
Risks in IS/IT systems
- Physical
- Viruses / Hacking
- Technical failure e.g. hard disk
- Infrastructure failure e.g. internet
- Human error
- Theft
- Business interruption e.g. fire/flood
Risks of international operations
- Cultural differences
- Transit risk
- Credit risk
- Economic risk e.g. exchange rates
General types of risk
- Pure - outside entities control
- Gross - acknowledges, but does nothing about
- Net - residual risk after taking appropriate action
Mitigating political risk
Build effective relationships with local stakeholders
- political lobbying
- joint venture/local acquisition
- invest in local community / employ local people
- source local raw materials
- respect local laws/traditions
Macro-economic risk
Probability/liklihood that levels of general economic activity will infludence the performance of the entity
Mitigating - spread+diversify operations/product portfolio around the globe
Reputational Risk
Incidents/situations/actions that can influence the perception of an entities brand
Mitigating
- Robust supplier selection procedures + ongoing review
- Robust disciplinary process
- Robust recruitment + procedures
- PR/Social media
- Legal constraints “non-disclosure clauses”
- Speedy response
Risk (defn)
Probability/liklihood that actual results will deviate from planned results
- Better (favourable) - “enjoyed” upside risk
- Exploit
- Worse (adverse) - “suffered” downside risk
- Mitigate
