P2 - C6 - Risk Management Flashcards
Define Risk Management
“Identification, assessment and prioritisation of risks followed by coordinated and economical application of resources to minimise monitor and control the probability and/or impact of unfortunate events”
What are the 4 types of business risk?
Strategic Risk
Compliance Risk
Operation Risk
Reputational Risk
What is strategic risk?
When a company does not operate according to its business model, its strategy becomes less effective over time, and the company may struggle to reach its defined goals.
What is compliance risk?
Compliance risk primarily arises in industries and sectors that are highly regulated
What is operational risk?
Operational risk arises from within the company itself, usually when the daily operations of a company fail to perform.
What is reputational risk?
Reputational risk is when a company’s reputation is ruined either from another risk or from a different occurrence
What are the 5 steps of risk management?
Step 1 - Identify threats
Step 2 – Assess the risks
Step 3 – Risk treatment / management
Step 4 – Implementation
Step 5 – Review and control
Name 7 potential sources of threats to a business
- Stakeholders of a project
- Employees of a company
- Environmental
- Political change
- Economic circumstances
- Technological change
- Competitors
How do you assess the risks identified?
Using Potential vs Impact
- Potential severity of impact
- The probability of occurrence
- These can be plotted on a risk map
What framework can be used to create a plan for the treatment and management of a risk?
TARA
Transfer - Insurance, outsourcing
Avoid - Don’t do the activity
Reduction - Sprinklers, Locks, BS Controls
Acceptance - Cost of loss = or greater than cost of mitigation
What is done during the implementation stage of a risk management cycle?
Taking the actions agreed in the risk management plan
Adding security, reducing high value stock, ensure insurance is up to date
How would you go about reviewing and controlling any implemented risk management strategies
- Evaluate whether the previously selected controls are still applicable and effective
- Evaluate the possible changes in risk level in the business environment
Discuss the 7 steps within CIMA’s Risk Management Cycle
- Establish a risk management group and set goals
- Identify risk areas
- Understand and assess the scale of risk
- Develop a risk response strategy
- Implement the strategy and allocate responsibilities
- Implement and monitor the suggested controls
- Review and refine the process and do it again
Define ethics
A code of moral principles that people follow with respect to what is right or wrong
Suggest 6 ethical issues that could be related to risk
The treatment workers
Avoiding bribery
Good professional conduct and honesty
Respecting people’s personal data
Appropriate and fair advertising
Safety at work
Give 4 reasons why ethics are important to a business
Generate a good feeling amongst staff
Avoid legal action
Avoid bad publicity
Competitive advantage
