Risk, governance and response Flashcards
Define risk
Uncertain future events which could influence the achievement of an organisation’s strategic, operational, and financial objectives.
Pestel links to which KC Principle:
Principle 4
What does PESTEL stand for and what is it used for?
P- political
E- economic
S- Social
T - technological
E - environmental
L - Legal
PESTEL is used to help identify risks as well as being assisted by a SWOT analysis.
Define SWOT
SWOT is used to assist PESTEL in identifying risk.
SW - (internal considerations)
OT - (external considerations)
Risk Classification: (7 classes)
- Business or Operational Risk
- Country Risk
- Environmental Risk
- Financial Risk
- Reputational Risk
- Strategic Risk
- Regulatory risk
Business or operational Risk:
The risk which results from an entity’s activities arising from its structure, operations, staff, people, products and system process.
Examples include:
- system failures resulting in loss of revenue and damages to brand
- Fraud
- Health and safety issues such as workplace injuries
- Loss of key suppliers
- Faulty goods being produced and sold due to defective equipment or poor quality systems.
Country risks:
The risks which arise from being associated with a corporation’s business and transactions or the holding of assets in specific countries.
Examples include:
- the risk of depending on a single country or region for majority of sales
- high levels of crime
- general skills shortages
- currency instability
- inflation
- credit ratings
nationalism/privatision
Environmental risks:
The risk of environmental issues preventing the organisation from achieving its objectives.
This can overlap country risks.
Examples:
- climate change
- natural disasters
- environmental protection laws
Financial Risks:
Risks associated with the financial operations of an entity and including factors such as:
- credit risk
- currency risk
- interest rate risks
Reputational Risks:
Risks associated with an entity’s reputation as a result to manage the disparate risks.
Examples:
- Producing and selling defective products
- Association with illegal or socially irresponsible actions.
- Damage to a firm’s brand or image due to inappropriate policies, processes, or procedures being followed.
Strategic risk:
The risk that an entity’s strategy is inappropriate for achieving its objectives.
Examples:
- Does not deal adequately with the firm’s environment
- an out-of-date strategy
- Strategy overlooks key limitations or opportunities
- strategy fails to take important risks into account
How to remember your business risks:
Because IFRS
BC EFRRS
Regulatory risks:
Risks arising from specific laws and regulations:
For Example:
- Criminal sanctions
- Fines and penalties
- Legal costs
These risks also give rise to operational, financial and reputational risks.
Define the risk identification methods:
- Panel method
- Company relies on a review from a panel of experts to access the risks. This can be done using questionnaires, surveys or round table discussions.
- Usually done when a company is reviewing a new type of transaction. - Cost-benefit or expected value analysis
- The company looks at the costs and benefits of particular choices. Advantages and disadvantages may be assigned values and probabilities of occurrence.
- The entity computes a specific value and decides whether it should proceed with a particular course of action. - Subjective Review
- In most cases an organisation relies on a review of different choices by experienced members of management. This risk assessment is qualitative.
- This is a more flexible option than option 2.
Risk matrix
Page 8
