Risk Management [C12] *G11 Flashcards by Luffie M

Risk management definition *2

*process of
analysing the probability of an event taking place
*and then planning to minimise the impact of the event

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Risk management objective

to ensure a
balance between business opportunities and
threats

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Risks can be seen as… *3

 A threat (e.g., weather condition)
 An opportunity (e.g., e-learning)
 Just uncertainty (e.g., unstable economy)

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Events that pose a risk to the business *6
[edy eats pasta to chew chew]

 Economic growth or recession (country)
 Economy on global level
 Political developments
 Technological advancements
 Changes in legislation
 Changes in consumer demand

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Legislation definition

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Name the points of strategic planning *6 ^

Vision
Mission
Value statement
Organisational structure
Goals
Objectives

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Explain risk management ^

Alignment between business strategy and business operations

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Explain business operations ^ *3

Implementing policies
Managing processes
Monitoring daily activities

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Explain risk profile

the degree that the business is willing to accept risks in
pursuit of achieving business goals

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Explain risk culture *2

*shared attitudes and practices in the business
*collective attitude to accept risks

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Explain risk response

– process of determining actions to be taken to reduce threats in the business
(risk-avoidance vs. risk-
acceptance vs. risk-reduction).

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Explain risk reporting

a way of reporting business risk to internal and external
stakeholders of the business in case of possible risk (compliance,
mishaps).

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Name the types of risks *6
State if internal or external

INTERNAL
Operational
Financial
Strategic
EXTERNAL
Country
Environmental
Reputational

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Explain operational risks

The risks associated with the internal operations

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Country risks

Risks associated with the location of the business in a particular country

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Environmental risks > physical environmental *3

*floods + droughts
*traffic
*location - crime

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Environmental risks > business environmental *3

*technological developments
*competition levels
*socio economic factors - unemployment levels

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Financial risks

Associated with the financial operations of the business

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Reputational risks definition

Damage to a business’s reputation as a result of business practice

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Examples of Reputational risks *3

*Customer complaints on social media
*Causing environmental damage
*Being unethical

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Strategic risk definition

Risks associated with overall formation

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Strategic risk examples *2

*poorly formulate vision
*unreaslistic goals

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Operational risks examples *5

*systems
*people
*data storage and security
*product development
*Organisational structures

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Financial risks examples *4

*credit risk
*exchange rates
*solvency risks
*interest rate increases

Country risks examples *3

*political events *economic conditions *regulatory stability

Risks every entrepreneur must take *3

1. Abandoning the steady paycheck. 2. Sacrificing personal capital. 3. Donating personal time (and health

What are the risk assessment steps *3

*identification of risks *description of risks *estimation of risk impact

Explain risk identification *2

*Ensure all significant activities within business have been identified *And all risk factors from these activities are identified

Name risk identification elements *6

Risk workshops Benchmarking Auditing Surveys Scenario planning Stakeholder consultations

Explain risk workshops

Could be internal or external

Explain benchmarking

Look at “best practice” regarding certain risks

Explain auditing *2

*internal and external auditor have a responsibility to identify possible risks *could be an audit to determine if business has dealt with risk effectively

Explain surveys

Surveys assist the business to identify risks by asking questions to relevant parties

Explain scenario planning

Looking at possible outcomes then planning how to handle the situation

Explain stakeholder consultations

Third party has to be in a consultation if they’ve been involved in a situation

Explain the description of risks *2

*Once the risk factors have been identified, they need to be described in sufficient detail *to ensure all relevant parties understand

Explain risk impact estimation

This helps the business assess the impact of each risk

List estimation tools *5

Pros/cons chart Cost/risk benefit analysis Decision trees PESTLE SWOT

Explain estimation matrix

*LP,LI *HP,LI *LP,HI *HP,HI

Explain LP,LI *3

*IGNORE - Most likely to ignore *NOT LIKELY - Chances event taking place is low *LOW IMPACT - If it happens impact won’t be serious

Explain HP,LI *3

*IGNORE - Not crucial to address *LIKELY - Likely to happen *LOW IMPACT - Impact is low

Explain LP,HI *3

*Not invest a lot *NOT LIKELY - Chances happening low *Impact huge

Explain HP,HI *3

*ATTENTION - Business will try to avoid at all costs *LIKELY *HIGH IMPACT

Risk management definition

How to deal with a risk

Risk management policy - What to ensure a comprehensive policy *3

Drafted (developed in writing) Communicated to all relevant parties Implemented the business

Risk response shows how risks can be… *3

Avoided Reduced Accepted

Explain risk avoidance

Action taken to prevent or limit activities that lead to risk (Not entering a specific market)

Explain risk reduction

Action taken place to limit the possibility of the risk occurring/mitigate the impact of the risk

Explain risk acceptance *2

*No action is taken place to stop or limit the impact of the risk *Simply nothing can be done

(Risk) reporting to internal stakeholders

Reporting risk management info to people involved in decision making/performance reviews

(Risk) reporting to external stakeholders

Reporting risk management information to external stakeholders (Notifying the public, consumers)

Risk management steps *4

Assessment Management policy Response Reporting

Uncertainties examples *6 (PETCLE)

*economy of country *economy on global level *political developments *tech advances *legislation changes *consumer demand changes

Financial risk examples *5

*credit risk - debtor doesn’t pay *exchange rate fluctuations *interest rate increasing *solvency risks- liabilities >>> assets *liquidity risks- cash flow

Managing risks *2

*important that risk management is seen as holistic business practice across different management levels and departments *important risk impact is determined to understand impact

Strategies are developed after impact had been determined by *3

*capitalising on strengths *addressing internal weaknesses *exploiting competitors weaknesses

The 4 elements of risk management

*risk assessment *risk management policy *risk response *risk reporting

Risk reporting

Reporting risk management information to all relevant stakeholders

Importance of risk management has emphasis on

Outcomes like preventing stuff