Risk Management Function Flashcards
What must business pay attention to for a competitive advantage?
Risk business may face
What does risk management do?
Identifies, assesses, controls threats as well as developing strategies on how to deal with different risks
List possible risks
• Loss/damage - fire,floods,theft
• Loss of customers - changing trends, decline income, more competition
• Unforeseen circumstances
- Covid19
Why must business identify different risks?
Well prepared to confront and manage - cost effective
What must the owner do in order to identify risks?
Visualise what the future holds
How must the potential future outcomes be brainstormed?
Decision tree technique
What are the three types of risks?
- Preventable risks
- Strategy risks
- External risks
Define preventable risks
Controllable + avoided/managed by changing certain structures
What are strategy risks?
Take risks by implementing a specific strategy - hope increase market share
What are external risks?
Events businesses have no control.
What are external risks caused by?
Political decisions, economic downturns, change jn trend, pqndemics
What must be put in place for an external risk?
Preventative measures
Define risk estimation
Management of business looks at the probability of certain risks occurring and the impact
What is a risk profile?
Summary which lists all the estimates of what can go wrong, with a strategy, new product or program to mitigate it
Who is a risk profile drawn up by?
Management
How is the risk profile summary visualised?
Using probability studies to show impact if unsuccessful
What is risk culture?
The culture of the business which cannot be controlled
What will the employees have in risk culture based on experience?
Shared behaviours, values and goals
What does risk culture lead to?
Type of decision made in business
Assessment on how much of the Rick can be afforded
Name the five types of risks
- Strategic risk
- Compliance risk
- Operational risk
- Financial risk
- Repetitional risk
What is a strategic risk?
Business strategy becomes less effective and struggles to reach its goal
What is a strategic risk caused by?
Technological changes, new competitor, shift in demand, spikes cost of raw materials
What is compliance risk?
Failing to comply with existing regulations and new laws - expands
What is operational risk?
Unexpected failure in a businesses day-to-day operations
What does operational risk include?
Technical failure, people or processes
What is financial risk?
Money is always flowing in and out of the business which increases the possibility of financial loss.
What increases financial risk?
Short term debt
What is a reputational risk?
Businesses reputation is damaged gas immediate loss of revenue – customers become wary
What happens to the employees in terms of a reputational risk?
They may become demoralised and decide to leave. Finding good replacements will be difficult as no one will want to join the firm
What will happen to suppliers and advertises in terms of a reputational risk?
Suppliers will get off at least favourable terms. Advertises, sponsors and other partners might decide they don’t want to be associated
Name the five steps of the risk management process
- Risk identification
2: risk analysis - Risk assessment and evaluation
- Risk mitigation
- Risk monitoring
What is risk identification?
Identify and define potential risk that may negatively impact the business
What is risk analysis?
Gain insight into the possibility of the risk occurring as well as the impact
What is risk assessment and evaluation?
Further evaluation to determine if the risk is likely and acceptable to the company – return potential reward
What is risk monitoring?
Follow up and review the risk process. Track and existing risks
