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BTF > Chapter 5 - Intro to risk management > Flashcards

Chapter 5 - Intro to risk management Flashcards

1
Q

What is risk?

A

The possible variation in an outcome from what is expected to happen

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2
Q

What is uncertainty?

A

Inability to predict an outcome due to lack of info

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3
Q

What is upside risk?

A

Risk that something will go right

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4
Q

What is downside risk?

A

Risk something will go wrong

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5
Q

What is pure risk?

A

Possibility something will go wrong

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6
Q

What is speculative risk?

A

Possibility something goes better than expected

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7
Q

What are controllable risks?

A

Ensuring internal controls are adequate

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8
Q

What are uncontrollable risks?

A

Environmental events such as trading conditions

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9
Q

What risks do lenders bear?

A

Risk the business defaulting on debt obligations

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10
Q

What risk do shareholders bear?

A

Ultimate bearers of risk

Interested in dividends and share price

Relationship between divdends/share price and risk is volatility of returns

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11
Q

What is risk appetite?

A

Extent to which a business is prepared to take risks to achieve objectives

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12
Q

What defines a risk averse attitude?

A

More certain, lower return investment chosen

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13
Q

What is a risk neutral attitude?

A

Investment chosen according to expected return irrespective of risk

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14
Q

What is a risk seeking attitude?

A

Investment chosen based on offering higher levels of risk

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15
Q

What are the 3 classifications of risk?

A

Business
Financial
Operational

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16
Q

What is business risk?

A

Arises from the nature of the entity’s business, industry and operating conditions

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17
Q

What are the subcategories of business risk?

A

Strategy risk
Enterprise risk
Product risk
Financial risk - application of changing IR
Sustainability risk - poor appraoch to ESG
Operational risk - something will go wrong

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18
Q

What are financial risks?

A

Credit risk - risk customer fails to pay
Liquidity risk - chance cash runs out
Market risk - uncontrollable risk, hedging helps

19
Q

What are operational risks(PPSEC)?

A

Process risk - chance process is inefficient
People risk - cannot obtain sufficient quality of staff
System risk - systems fall short
Event risk - chance of disaster occuring
Cyber risk - IT and IS breaches

20
Q

What is exposure?

A

Measure of how a business is faced with risks due to the nature of the business

21
Q

What is volatility?

A

How the factor to which a business is exposed to is likely to alter

22
Q

What is impact?

A

Measure of amount of the loss if undesired outcome occurs

23
Q

What are stats?

A

Collection, description, analysis and inference of conclusions from quantitative data

24
Q

What is a data set?

A

Collection of data about a population/sample

25
Q

What is the standard deviation?

A

Average deviation from the mean of a data set

26
Q

What is the expected value?

A

weighted average

27
Q

How do stats influence decision making?

A

Bigger standard deviation means bigger risk
Information means informed decisions made
Higher risk, higher expected value required
Same expected return, choose smaller standard deviation

28
Q

What are properties of the normal distribution?

A

Mean of distro=median=mode
Symmetrical
Continuous distribution
The closer a range of values is to the mean, higher probability of that range of values
occurring

29
Q

What is a skewed distribution?

A

Asymmetrical towards one side
Mode highest point
Mean furthest from mode
Median in-between mode and mean

30
Q

What is risk management?

A

Identifying, analysing and controlling risks that threaten assets/earning capacity

Aim to reduce exposure or probability

31
Q

What are the 4 steps of risk management?

A

Awareness and identification
Analysis
Response and control
Monitoring and reporting

32
Q

What are the possible responses to manage a risk in sequence order?

A

Avoidance
Reduction
Share/transfer
Accept/retain
As low as reasonably practicable (ALARP)

33
Q

What is a crisis?

A

Unexpected event threatening business wellbeing or shareholders

34
Q

What is crisis management?

A

Indentifying a crisis, planning a response and confronting and resolving

35
Q

What are the different types of crisis?

A

Natural event
Industrial accident
Product/service failure
PR disaster

36
Q

How is a crisis managed?

A

Crisis prevention - avoid decisions with potential to become a crisis
Contingency planning - plan for worst case scenario

37
Q

What is a disaster?

A

Breakdown of business operations leading to potential losses of equipment, data or funds

38
Q

What does a long-term disaster plan include?

A

Standby procedures
Recovery procedures
Personnel management

39
Q

What is business resilience?

A

Business’s ability to manage and survive against planned/unplanned shocks/disruptions to operations

40
Q

What are the 2 axes ICSA use to describe an organisation’s resilience?

A

Processes and functions that protect organisation, e.g. risk management and health and safety

Generic characteristics, e.g. employee morale

41
Q

What challenges do the ICSA identify to a business building resilience?

A

Lack of expertise
Lack of input from senior management
Siloes for delivery
Limited sharing of risk info

42
Q

What are the 4 metrics ICSA use to measure resilience?

A

Compliance
Completeness
Value
Capability

43
Q

What are the contents of a business continuity plan?

A

Responsibilities
Priorities
Backup and standby arrangements
Staff communication
PR
Risk assessment

44
Q

What does a lower CV mean?

A

Less risk

BTF (11 decks)

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