Chapter 1: Introduction To Risk In Business Flashcards
Difference between risk and uncertainty
Risk has variability’s that can be quantified with probability whereas uncertainty cannot be quantified
What are the key elements to a simple risk framework
Risk Policies and governance at board level, Risk oversight and day to day risk management
what is risk oversight
Often performed by the business unit (First line of defence) with results and action plans reported to, and agreed with, the independent risk management function (second line of defence), often organized by risk type and performing risk type and performing tasks such as: Identifying risks, assessing risks, ensuring that risks are appropriately controlled and monitoring and reporting on the risks and their associated controls
what is day-to-day risk management
This activity is inseparable from good business management and must be owned by te business units, not the risk function
what causes external risks
Unforeseen changes in: The global economy, the political arena, the competitive environment, social and market forces, environment, technology and cyber security
How does political risk affect financial services
A rise or fall in the markets in which firms invest. An increase or decrease in demand for the products which the industry sells. Changes to the legislative and regulatory environment in which financial services firms operate.
What are some examples of changes in the social and market forces that affect financial services?
- technological advances and their impact on products and their use*
changes in consumer behavior*
rising inequality of wealth distribution*
the propensity to save*
attitudes to living on credit, and*
house prices and their relationship to demographic change
What is Cyber risk
Cyber risk covers a broad range of risks that are related to the theft of, or damage to, information stored on (or exchanged between) computers, as well as the systems and websites that run on those computers
What are some examples of external stakeholders that can present external risk?
The firms parent company, major institutional investors, any particularly large or important customers. Other third parties may include regulators, brokers, solicitors, IT and data suppliers, outsourced back office administrators, advisors
what are the key ways to manage stakeholder risk?
Build relationships at senior levels, understand their agenda and how it may differ from the firm’s agenda, manage expectations with any new developments
Causes of environmental risks?
Climate change, depletion of natural resources
Causes of social risks?
Human capital risks, product liability issues, stakeholder opposition
Causes of Governance risks?
Corporate governance issues, corporate behavior issues
Which techniques help to establish a risk profile
PESTLE analysis, business continuity planning, business process analysis
What does PESTLE stand for
Political, Economic, Social, Technological, Legal, Environmental
What is business continuity planning
The act of planning for disaster recovery and business continuity planning will uncover a number of external risk factors
What is Business Process Analysis
Examining each high level business process and describing both the internal low-level processes and the external factors which can influence those processes
What is strategic risk
The current or prospective risk to earnings and capital arising from changes in the business environment and from adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment
