Risks

Question 1

Types of risk

Answer 1

Financial risk
Operational risk
Strategic risk

Question 2

Define financial risk

Answer 2

Risk due to the financial structure and policies of the business

Controllable elements of financial risk are around how the business chooses to finance itself

Uncontrollable elements of financial risk relate to external factors such as interest, exchanges rate and the economy

Question 3

Define operational risk

Answer 3

Variability arising from the effectiveness of how the business is managed and controlled on a day to day basis, the accuracy and effectiveness of its information/accounting systems, its reporting systems and its management and control structures. Also encompasses compliance risks.

Question 4

Define strategic risk

Answer 4

Risk associated with longterm strategic objectives of the business, potential variability of business returns arising as a result of company’s strategy and strategic position with respect to competitors, customers, reputation, regulations, political change.

Question 5

Define Controllable risk

Answer 5

Those risk factors which are within the ability of management to control to some extent. Often controllable risks relate to factors internal to the organisation and, as a result, may be easier to manage directly, however, this may not always be the case.

Question 6

Define Uncontrollable risk

Answer 6

Risks outside of the organisation’s direct control and tend to be driven by external changes; factors include changes in economic conditions and advances in technology.

Question 7

Define Hazard risk

Answer 7

The exposure a business may have to natural events and their impacts. Such risks may arise from factors outside of the control of the entity. They may also arise from factors that would ordinarily be within the control of the organisation, such as the actions of employees, the consequences of accidents etc, be it on the business, its trading partners or customers.

Question 8

Define Compliance risk

Answer 8

The risk arising from non-compliance with laws or regulations. This includes breach of laws/regulations by the company, or breaches by a stakeholder (eg, customer or supplier) which may have consequences for the company. It may relate to financial laws/regulations (eg, contracts, tax, financial reporting, pensions and social security, company law etc) or to non-financial laws/regulations (eg, health and safety, employment law etc).

Question 9

Cyber risk

Answer 9

The risk of financial loss, disruption or damage to the reputation of an organisation from some sort of failure of its information technology systems.

Question 10

Define climate risk

Answer 10

The risk posed to organisations and society at large from changes in global temperatures, resulting in changing and potentially damaging weather patterns and systems. Organisations can both contribute to and be negatively affected by climate risk.

Question 11

What are the six risks in PESTEL

Answer 11

Political
Economic
Social/cultural
Technological
Ecological/environmental
Legal