P2 - 11. Risk Management

Question 1

What is upside risk?

Answer 1

Outcomes may be better than expected

Question 2

What is downside risk?

Answer 2

Outcomes may be worse than expected

Question 3

What is a fundamental risk?

Answer 3

Risks that affect the economy or society generally and cannot be controlled by any one individual

Question 4

What is a particular risk?

Answer 4

A risk that an individual may be able to control

Question 5

What is a pure risk?

Answer 5

A risk where the only outcome is harmful

Question 6

What is a speculative risk?

Answer 6

A risk which could have a good or bad outcome, e.g. exchange rates

Question 7

What 2 things influence a business’ appetite to risk?

Answer 7

1. Risk capacity

2. Risk attitude

Question 8

What are the 4 major categories of risk?

Answer 8

1. Strategic
2. Operational
3. Compliance
4. Reporting

Question 9

What is strategic risk?

Answer 9

Risks arising from the overall strategic positioning of the company in its environment

Question 10

What is operational risk?

Answer 10

Potential losses arising from the normal business operations (day to day running of things)

Question 11

What is product risk?

Answer 11

The risk that the success of products may be different to the expected

Question 12

What is macro-economic risk?

Answer 12

Unexpected changes in the economy

Question 13

What is an example of political risk?

Answer 13

Terrorism on public transport, uprising

Question 14

What is social risk?

Answer 14

Changes due to social trends, e.g. rise of use of internet shopping over high streets

Question 15

What is technological risk?

Answer 15

Risk that advancements in technology render products obsolete or at a disadvantage

Question 16

What are the 7 steps in risk management?

Answer 16

1. Establish a risk management group and set goals
2. Identify risks
3. Understand and assess the scale of risks
4. Develop a risk response strategy
5. Implement strategy and allocate resources
6. Implement and monitor suggested controls
7. Review and refine

Question 17

What is a risk audit?

Answer 17

Assessment of the competitive environment, relevant economic conditions and business activities used to identify risks

Question 18

What are the 2 elements on the risk matrix framework?

Answer 18

Likelihood and scale of impact

Question 19

What are the 4 possible options for managing risks?

Answer 19

1. Transfer the risk
2. Accept the risk
3. Reduce the risk
4. Avoid the risk

Question 20

What are the 5 biggest risks of unethical behaviour?

Answer 20

1. Legal penalties
2. Lack of trust by other businesses
3. Loss of reputation
4. Conflict of interest for staff between personal / organisational / public interest
5. Loss of investor confidence + value

Question 21

What are CIMAs 5 ethical threats?

Answer 21

1. Self interest
2. Self review
3. Advocacy
4. Familiarity
5. Intimidation

Question 22

What are the 6 main safeguards that should be put in place

Answer 22

1. Cultural emphasis on ethics
2. Ethics training
3. Quality control procedures
4. Monitoring of employees
5. Disciplinary procedures
6. Whistle blowing channels