CHAPTER 2 - Risk Flashcards
What is risk?
Business risk is a circumstance or factor that may have a significant negative impact on the operations or profitability of a given business.
can result from internal conditions or external factors
types of risk (4)
Financial Risk
Operational Risk
Strategic Risk
Compliance Risk
Internal Risks (4)
Product failures
Failure of equipment
Employee error
Public relations failures
External Risks (4)
Natural disasters
Supply chain problem
Economic factors
Legal challenges
Risk management (4)
process of understanding and minimising what might go wrong in an organisation
- the identification and analysis of risks to which the organisation is exposed
- a measurement of the likelihood of the risks occurring
- an assessment of potential impacts on the business
- deciding what action can be taken to eliminate or reduce risk
Examples of preventative actions (4)
Regular backup of IT systems
Put robust quality control systems in place
Install a sprinkler system
train staff properly
Contingency planning
plan of action to be followed in the event of an emergency or crisis occurring which threatens to destroy or significantly disrupt the continued operation of normal business activities
- restores normality
crisis management
unforeseen event that threatens the business.
A well-run business will have plans in place to deal with the unexpected, reduce its impact and get back to normal as soon as possible.
What is the value of contingency planning?
holds great value
minimise the risk and limit the damage caused by a crisis
If damage to a business’s reputation can be minimised and profits/ dividends maintained
advantages of contingency planning (5)
helps maintain staff morale
provides continuity of products or services
reduces the impact on customers
protects against potential losses
well worth the money
disadvantages of contingency planning (2)
very costly
If nothing goes wrong, it might be seen as a complete waste of money
