Risk management Flashcards
What is risk?
The possible variation in outcome from what is expected to happen
What is uncertainty?
The inability to predict the outcome from and activity due to a lack of information
How can risk be measured?
Risk = Likelihood x Impact
What is the risk management process?
Risk appetite
Risk identification
Risk analysis (assessment)
Risk evaluation and response
Risk monitoring and reporting
Risk process and feedback
What is Risk appetite?
The extent to which a company is prepared to take on risks in order to achieve its objectives
What are the 4 main types of risk management attitude according to Miles and Snow?
Reactors - risk averse, only change if forced to
Defenders - low risk tolerance, grow incrementally
Analysers - balances, wait and see
Prospectors - risk seeking, seek new products/markets
What can be used for risk identification?
PESTEL
Porter’s five forces
What is risk assessment used for?
To establish the financial consequences of each risk and it’s likelihood
What is the TARA model
Used to outline a risk response:
Transfer
Avoid
Reduce
Accept
What are risk registers?
Used to document and monitor the risks that have been identified and the risk mitigation strategies
What is the break-even point?
The level of production required for a business to make neither profit or loss
How is the break even point calculated?
Total contribution = Total fixed costs
How do you calculate Total contribution?
= Total profit + Total fixed costs
= Units sold x Contribution per unit
How do you calculate Break-even units?
= Total fixed costs ➗️ Contribution on per unit
How to calculate the sensitivity if variables change?
= Estimated profit ➗️ Total value of the cash flow affected
