Component 3 - Risk Management Flashcards
Explain : The risks that businesses can encounter and their effect, Including :
1) Natural disasters
2) Failure of equipment/technology
3) Employee error
4) Supply problems
5) Economic factors
6) Legal challenges
7) Public relations and product failures
Businesses face a variety of risks that can impact their operations, reputation, and bottom line.
1) Natural disasters - Natural disasters such as earthquakes, floods, or hurricanes can disrupt supply chains or damage property.
2) Failure of equipment - Results in downtime, loss of productivity, and increased expenses.
3) Employee error - Leads to costly mistakes, including data breaches, product defects, and workplace accidents.
4) Supply problems - Impacts a business’s ability to meet customer demand and result in lost revenue.
5) Economic factors - Recessions , inflation, and currency fluctuations can impact a business’s financial performance, as well as its ability to access credit and invest in growth.
6) Legal challenges - Legal challenges such as lawsuits, regulatory fines, and intellectual property dispute.
7) Public relations and product failures - Damages a company’s reputation and result in lost sales.
All of these factors can result in Significant loss Sales, detrimental Company Reputation and increased Expenses
Explain : The Four Factors affecting how much a business might spend on Risk prevention, with an example of a business.
The decision on how much to spend on risk prevention will depend on a variety of factors, including
1 )The likelihood
2) Potential impact of the risk
3) The cost of implementing risk prevention
measures
4)The availability of resources.
For example, a business in an area prone to natural disasters would get greater benefit from investing in preventative measures than one who does not.
By conducting a thorough risk assessment and developing a comprehensive risk management strategy, businesses can make informed decisions on how to allocate resources and minimize the negative impact of risks on their operations and financial performance.
Explain : What is Meant by Risk
Risk refers to the likelihood of an event or circumstance occurring that will have a negative impact on a business’s operations or financial performance.
Explain : What is Risk Assessment
Risk assessment is a systematic process of identifying, analysing, and evaluating potential risks that may affect a business.
Explain : The importance of risk assessment as a tool for avoiding risks
A thorough risk assessment and a comprehensive risk management strategy, Can Help a business make informed decisions on;
1) How efficiently to allocate resources
2) Minimise the negative impact of Risks.
Explain: What is a Preventative Action and What Three changes they May involve
Preventive actions - Measures that business can take in order to avoid or reduce the impact of potential risks.
These actions may involve;
1 - physical, technological, or organizational changes designed to prevent or minimize the impact of potential risks.
Explain : Common examples of Preventative action such as ;
1) Installing water sprinklers
2) Backing up IT data
3) Training employees
Some common examples of preventive actions include:
1) Installing water sprinklers - Preventative action to Reduce the impact of a fire risk.
2) Backing up IT data - Preventive action to reduce the impact of a technology failure Risk, it can ensure that important data is not lost.
3) Training employees - Preventive action to reduce the impact of employee error risks, Employees with training can better perform their jobs safely and effectively, Reduces the risk of common mistakes or errors
Explain: Insurable and Uninsurable Risks.
Insurable Risks - Those that can be transferred to an insurance company. Typically external to the organization and beyond its control.
Uninsurable Risks - Those that cannot be transferred to an insurance company. Typically internal to the organization and are within its control.
Some examples of uninsurable risks include strategic risks, reputation risks, and regulatory risks. These risks are not typically covered by insurance policies and require other forms of risk management, such as mitigation, avoidance, or acceptance.
Explain : Examples of insurable vs uninsurable risks
Insurable -
1 ) Property damage
2) Theft,
3) Liability claims
4) Business interruption
Businesses can transfer these risks to an insurance company, which will pay for the damages or losses.
Uninsurable
1 ) Strategic risks
2 ) Reputation risks
3) Regulatory risks
These risks require other forms of risk management, such as mitigation, avoidance, or acceptance.
Explain : What is meant by contingency planning and crisis management
Contingency planning - The process of developing a procedure to ensure that a business can continue to operate in the event of unexpected events.
Crisis management - The process of responding to unexpected events that have already occurred (not considered when designing the risk management strat), it involves quickly assessing the situation, developing a response plan.
Explain : 3 Methods of contingency planning businesses can use to deal with risks, including;
1) Contingency funds
2) Alternative Production Arrangements
3) Dealing with PR
Contingency funds - Cash that is set aside to cover unexpected costs that may arise from risks, it can avoid cashflow problems.
Alternative production arrangements - Businesses can identify alternative suppliers to avoid problems from supply chain disruptions.
Dealing with PR - Businesses can protect their reputation in times of crisis.
Evaluate : The possible responses of a business to the potential risks that it faces
