Risk Management

Question 1

Risk (formula)

Answer 1

= likelihood x impact

Question 2

Types of risk attitude

Answer 2

~ defenders (low risk)
~ prospectors (risk seeking)
~ analysers (balanced attitude)
~ reactors (risk averse)

Question 3

Types of risk

Answer 3

BOSH FC
Business risk
a) Operational risk
b) Strategic risk
c) Hazard risk
Financial risk
Compliance risk

Question 4

Other risks

Answer 4

~ trading risks e.g. credit risks
~ cultural risks
~ political risks
~ legal risks
~ IT system risks

Question 5

Risk responses

Answer 5

Accept - low frequency, low severity
Reduce - high frequency, low severity
Transfer - low frequency, high severity
Avoid - high frequency, high severity

Question 6

Techniques for dealing with uncertainty

Answer 6

~ sensitivity analysis
~ break-even analysis
~ scenario building

Question 7

Sensitivity analysis

Answer 7

100% x profit/variable

Question 8

Weaknesses of sensitivity analysis

Answer 8

~ examines one risk at a time

~ extent of change needed b4 breakeven but not probability of it occurring

Question 9

Breakeven output (formula)

Answer 9

= total fixed costs/ contribution per unit

Question 10

Required output (formula)

Answer 10

= (total fixed costs + required profit)/ contribution per unit

Question 11

Margin of safety (formula)

Answer 11

= (planned sales - breakeven sales)/ planned sales

Question 12

Breakeven price is equal to…

Answer 12

total cost per unit

Question 13

Opportunity costs

Answer 13

cash flow foregone if resource used for alternative product

Question 14

Expected value

Answer 14

~ weighted average, based on probabilities

~ guide for mgt

Question 15

Limitations for decision trees

Answer 15

~ doesn’t account for time value of money
~ not suitable for complex situations
~ probabilities may be unreliable or inaccurate

Question 16

Strategic planning

Answer 16

considers business dev over 10-15yrs

Question 17

Business planning

Answer 17

considers business dev over 12m

Question 18

Budgeting process

Answer 18

1. standard setting
2. budget
3. variance analysis
4. performance measurement
5. accountability

Question 19

Pros of budgeting

Answer 19

PRIME
Planning
Responsibility
Integration
Motivation
Evaluation

Question 20

Cons of budgeting

Answer 20

~ out of date targets
~ often top-down process
~ many aspects are non-controllable