P2 - 11. Risk Management Flashcards
What is upside risk?
Outcomes may be better than expected
What is downside risk?
Outcomes may be worse than expected
What is a fundamental risk?
Risks that affect the economy or society generally and cannot be controlled by any one individual
What is a particular risk?
A risk that an individual may be able to control
What is a pure risk?
A risk where the only outcome is harmful
What is a speculative risk?
A risk which could have a good or bad outcome, e.g. exchange rates
What 2 things influence a business’ appetite to risk?
- Risk capacity
2. Risk attitude
What are the 4 major categories of risk?
- Strategic
- Operational
- Compliance
- Reporting
What is strategic risk?
Risks arising from the overall strategic positioning of the company in its environment
What is operational risk?
Potential losses arising from the normal business operations (day to day running of things)
What is product risk?
The risk that the success of products may be different to the expected
What is macro-economic risk?
Unexpected changes in the economy
What is an example of political risk?
Terrorism on public transport, uprising
What is social risk?
Changes due to social trends, e.g. rise of use of internet shopping over high streets
What is technological risk?
Risk that advancements in technology render products obsolete or at a disadvantage
What are the 7 steps in risk management?
- Establish a risk management group and set goals
- Identify risks
- Understand and assess the scale of risks
- Develop a risk response strategy
- Implement strategy and allocate resources
- Implement and monitor suggested controls
- Review and refine
What is a risk audit?
Assessment of the competitive environment, relevant economic conditions and business activities used to identify risks
What are the 2 elements on the risk matrix framework?
Likelihood and scale of impact
What are the 4 possible options for managing risks?
- Transfer the risk
- Accept the risk
- Reduce the risk
- Avoid the risk
What are the 5 biggest risks of unethical behaviour?
- Legal penalties
- Lack of trust by other businesses
- Loss of reputation
- Conflict of interest for staff between personal / organisational / public interest
- Loss of investor confidence + value
What are CIMAs 5 ethical threats?
- Self interest
- Self review
- Advocacy
- Familiarity
- Intimidation
What are the 6 main safeguards that should be put in place
- Cultural emphasis on ethics
- Ethics training
- Quality control procedures
- Monitoring of employees
- Disciplinary procedures
- Whistle blowing channels
