Chapter 1 - Legal Considerations: Risk

Question 1

What are specific areas of operational risk?

6

Answer 1

1. Reputational risk - threat to perception of the Co
2. Litigation Risk - possible loss/damage consequence of legal action
3. Process risk - possible losses resulting from poorly designed business processes
4. People risk - possible losses due to human error/deliberate actions
5. Systems risk - possible losses due to poorly designed systems
6. Event risk - threats from one -off incidents eg fire

Question 2

What is an OPERATIONAL RISK?

3

Answer 2

The risk of losses resulting from inadequate or failed

1. internal processes
2. People & Systems
3. External events

Question 3

Types of RISKS

6

Answer 3

Political (Host country may act against you as a company)
Economic, changing economic conditions (recession)
Social, change in tastes, demography (changing tates in fashion)
Technological (product becomes obsolete due to advances in technology)
Physical (climate, geology)
Strategic (aggressive advertising by rivals)

Question 4

What is a risk?

Answer 4

The unexpected variability or volatility of future cash flows and returns

The probability of threat of quantifiable damage, injury, liability, loss or any other negative occurrence that is caused by internal vulnerabilities and that may be avoided through pre-emptive action

The probability of something happening multiplied by the resulting cost or benefit if it does (Risk = probability x impact)

The effect of uncertainty on objectives