risk management Flashcards
what is risk management?
practice of identifying potential risks in advance, analysing them and taking precautionary steps to minimise a firm’s exposure to the risk
what is an opportunity cost?
value of the next best alternative whena decision is made
what are the types of risk facing a business?
- natural disasters
- employee error
- equipment failure
- product failure
- economic factor
- legal challenges
- public relations failure
- supply problems
how do you calculate risk score from a risk assessment matrix?
impact x probability
what is a quantifiable risk?
a risk that can be planned for i.e., financial risk, operational risk, strategic risk, compliance risk
what is the ISO 31000?
company that helps firms to improve the identification of risks, helping effectively allocate resources so businesses achieve their objectives
what aspects of risk does the ISO 31000 consider?
how to minimise risk
eliminating sources of risk
acceptable levels of risk when pursuing opportunities
sharing risk with other parties
what is a risk register?
record of each risk, the probability of their occurrence, which helps minimise businesses’ exposure to risk
how does a business use a vulnerability map of risk?
look at the level of disruption probability (low-high) and the level of consequences (light-severe).
what are the key roles of a risk manager?
implementing preventative policies that minimise a firm’s exposure to risk, but doesn’t guarantee removal of risk
-easier to apply to internal risks.
what are insurable risks?
-due to chance
-definite and measurable
-predictable
-not catastrophic
(businesses pay insurance premiums to cover themselves from risks)
what are uninsurable risks?
type of risks insurer is not ready to insure against as future losses can not be estimated/calculated
i.e., consumer demand, floods, technological change
what is contingency planning?
agreed course of actions a business and its employees will adopt should things go wrong
what are the main aims of a contingency plans?
contain/minimise damage to persons or property
allow main operational functions of the business to continue
what are examples of contingency planning?
flood fire death of key employee cyber attack terror attack pressure group activity supplier failure
what are the benefits of contingency planning?
reassures stakeholders
managers spend less time ‘fire fighting’ should a crisis occur
public relations better managed
what are the disadvantages of contingency planning?
takes up valuable management time
no guarantee plans effectiveness
can encourage inflexibility
plan needs constant updating
what are other contingency strategies?
insurance (regularly checked)
contingency cash fund (for sudden emergency)
alternative production facilities
what is crisis management?
the process where business deals with an unexpected event that threatens to harm business and stakeholders.
what are the three common features of a business crisis?
an immediate threat to the firm’s survival
unexpected
decisions have to be made quickly
how do senior management operate in a crisis management situation?
lead the process and coordinate a firm’s response
plan must be communicated to everyone
what are some evaluation points of risk management?
impossible to identify all threats
cost of prevention needs to be assessed against cost of event
reliable basis for effective decision making
increased stakeholder trust and confidence
