CHAPTER 10 Flashcards
Define risk
possible variation in outcome from what is expected to happen
Quantification of potential variability in a value based on past data
Define uncertainty
inability to predict outcome from an activity due to a lack of information
cannot be quantified
What are the four classes of uncertainty
clear enough futures
alternative futures
range of futures
true uncertainty
Uncertainty - what are clear enough futures
future can be assessed with reasonable accuracy as it follows on from the past without major change
Uncertainty - what are alternative futures
outcomes depend on an event
Uncertainty - what are range of futures
outcome varies according to a number of variables that interact
Uncertainty - what is true uncertainty
very high uncertainty due to the number and unpredictability of variables influencing the outcome
Why manage risk (CG)
SH need to feel confident BOD are aware of risks and there is a system to monitor and control.
Must be stated in reports
Define risk management
process of identifying and assessing (analysing and evaluating) risks and the development, implementation and monitoring of a strategy to respond to those risks
What does risk management involve
selection, implementation, monitoring and review of suitable risk treatments for each risk identified
What does effective risk management enable a business to do
reduce threats to acceptable levels
make informed decision about potential opportunities
Allows stakeholders to have confidence in business and future prospects
What should the effect of risk management be
to reduce probability and or consequences of failure while retaining as far as possible benefits of successes
What is central to risk management strategy
risk management policy
To implement any risk management strategy, what must be in place
effective system for risk management, risk reporting and communication involving all levels in the business
Risk management strategy must be a what kind of process
top down to ensure integrated
What are corporate codes of conduct, environmental policies H&S policies, financial controls, information systems control and cyber security measures, personnel controls and internal audit examples of
risk management policies
What do corporate codes of conduct do
regulate how managers and staff relate to each other and to outsiders and seek to control risk from discrimination, bullying bribery and ASB
What do environmental policies do
cover issues like energy use, emissions, recycling, waste disposal
What do health and safety policies do
require H&S officers at all levels, committees, requirement of routine testing and risk assessment, fire procedures
What are financial controls
budgetary controls to safeguard earnings and spending, capital expenditure, authorisation procedures, financial accounting systems, credit controls ash management, insurance of assets
What is in the risk management model
Risk appetite
risk identification
risk analysis
risk evaluation and response
risk monitoring and reporting
review process and feedback
Define risk appetite
extent to which a company is prepared to take on risks to achieve objectives
Influence of managerial culture - four strategic types of business defined by orientation of management to strategic challenges - what are they
defenders
prospectors
analyseres
reactors
characteristics of defendors
low risk
secure market
tried and tested solutions
cultures whose stories and rituals reflect historical continuity
decision taking is formalised
stress on efficiency
Characteristics of prospectors
organisations where dominant belief more to do with results (effective) and take risks
Define analysers
try to balance risk and return, using a core of stable products and markets as a source of earnings to move into innovative prospects areas, follow change don’t initiate it
Define reactors
do not have viable strategies, sub-optimal in performance
What are other influences in risk appetite
Expectation of SH
attitudes
organisational nationality
regulatory framework
nature of ownership
personal views
Define controllable risk
risk factors in ability of management to control to some extent. often relate to internal factors and may be easier to directly manage
define uncontrollable risk
risks outside of the organisations direct control, tend to be driven by external changes, include changes in economic conditions and advances in technology
Are controllable and uncontrollable risks types of risk
no - forms which various risks can take
Define entity risk
all the risks that affect an entity (how it trades, markets and countries, decisions made by management… everything makes up entity risk)
define business risk
variability of returns due to how a business trades or operates
Define strategic risk
risk associated with LT strategic objectives of the business, potential variability of returns as a result of strategy and strategic position with respect to competitors, customers, reputation, legal or regulatory change.
encompasses knowledge management
Define operational risk
Variability arising from effectiveness of how the business is managed and controlled on day to day basis, accuracy and effectiveness of inforamtion/accounting systems, reporting systems, management and control structures
Inc compliance issues
Define Hazard risk
exposure to natural events and ipacts
define financial risk
due to how the business choses to finance itself
Risk categorisation - BOSHFC
Business (operational Strategic Hazard) Financial and Compliance risk
Financial risk tends to xx inherent business risk at low levels of gearing
amplify
Define compliance risk
risk arising from non-compliance with laws/regulations
define cyber risk
risk of financial loss, disruption or reputational damage from some sort of failure of IT Systems
Define climate risk
risk posed to an organisation and society from changes in global temperatures, resulting in different weather patterns and systems
Examples of climate related issues
scarce resources
impact on operations
damaged supply chains
costal erosion
increased insurance
reputational damage
