Introduction to Risk Management

Question 1

What is risk and uncertainty?

Answer 1

Risk - variation in outcome from what is expected
Uncertainty - cannot predict

Question 2

What are upside and downside, pure and speculative risks?

Answer 2

U - likely to go right
D - likely to go wrong
P - something will go wrong
S - could go better than expected

Question 3

What are controllable and uncontrollable risks?

Answer 3

C - adequate internal controls, finance, ESG
U - trading conditions, environmental events

Question 4

What are the risks to lenders and shareholders?

Answer 4

L - default of debt repayments, interest rate higher
S - share prices, volatility of returns

Question 5

What are the 3 risk attitudes?

Answer 5

Risk averse
Risk neutral
Risk seeking

Question 6

What is included in business risk?

Answer 6

Strategy risk, Enterprise risk, product risk, financial risk, Sustainability and climate change risk, operational risk

Question 7

What is included in financial risk?

Answer 7

Gearing risk - debt v equity
Credit risk - customers don’t pay
Liquidity risk - over-trading
Market risk

Question 8

What is included in operational risk?

Answer 8

Process risk
People risk
System risk
Event risk
Cyber risk

Question 9

What key risk concepts should businesses rely on?

Answer 9

Exposure
Impact
Volatility
Probability

Question 10

What are the advantages and disadvantages of mean, median and mode?

Answer 10

Mean - easy, represents everything
Not value in data set, distorted
Median - easy, outliers don’t matter
Not value in data set, hard to identify
Mode - easy, is value in data set, qualitative data too
Not all observations, more than one

Question 11

How do you calculate the expected value?

Answer 11

Sum of (Probability x Expected return)

Question 12

What is the standard deviation?

Answer 12

Square root of variance - how far from mean

Question 13

What is the co-efficient of variation?

Answer 13

Standard deviation/mean x 100
Higher = riskier

Question 14

What are the percentages for the normal distribution?

Answer 14

Middle = mean, mode, median
34.1% - 1 standard dev
13.6% - 2 standard dev
2.1% - 3 standard dev
0.1% - 4 standard dev

Question 15

What is the order of mean, median, mode for a skewed distribution?

Answer 15

Mode at peak, then median, then mean furthest away

Question 16

What is the order of the risk management process?

Answer 16

Awareness and identification
Analysis
Response and control
Monitoring and reporting

Question 17

How is gross risk calculated?

Answer 17

Probability x impact

Question 18

What are the 4 responses to manage risk?

Answer 18

Transfer - share risk
Avoidance - eliminate risk
Reduction - minimise impact
Accept or retain - cost outweighs impact

Question 19

What are the types of crisis?

Answer 19

Natural event
Industrial accident
Product/service failure
PR disaster

Question 20

How should businesses manage a crisis?

Answer 20

Try to prevent crisis
Make a contingency plan

Question 21

What is a disaster and what will a plan provide for?

Answer 21

Breakdown leading to loss
Standby procedure
Recovery procedures
Personnel management policies

Question 22

What is business resilience?

Answer 22

Ability to manage and survive against shocks and disruptions to operations

Question 23

What 4 metrics are used to measure resilience?

Answer 23

Compliance
Completeness
Value
Capability

Question 24

What does a business continuity plan include?

Answer 24

Responsibilities
Priorities
Backup/standby arrangements
Communication with staff
Public relations
Risk assessment