risks

Question 1

what is risk management ?

Answer 1

refers to the practice of identifying potential risks in advance, analysing them and taking precautionary steps to minimise a firms exposure to risk

Question 2

some types of risks facing businesses ?

Answer 2

• natural disasters
• employee error
• equipment failure
• economic factors
• legal challenges
• product failure
• public relations failure
• supply problems

Question 3

natural disasters

Answer 3

icelandic volcano 2010

massive travel disruption from an icelandic volcano with thousands of flights being cancelled

Question 4

probability of risk

Answer 4

all business activity involves an element of risk

risk is inevitable - every individual holds different wants and needs and the business has a changing nature

it is how a business manages their exposure to risk that matters

Question 5

what is a quantifiable risk

Answer 5

can be planned for and measures are put into place to minimise the impact upon a business

some risks are quite easy to predict and it is possible to calculate the impact of the risk upon the firm

risk = hazard x exposure

Question 6

what is important to take out if a risk is measurable ?

Answer 6

usually possible to take out insurance (at a cost to the business)

ensures that a business can continue running if the risk actually happens

Question 7

examples of quantifiable risks ?

Answer 7

financial risk, operational risk, strategic risk, compliance risk

Question 8

what is a risk register ?

Answer 8

after identifying, analysing and evaluating each risk and a suggested course of action a risk register can be made

• it records each risk, the probability of it occurring and their likely impact

Question 9

what are preventative measures ?

Answer 9

they minimise a firms exposure to risk and enable a firm to still function should the worst happen

not guaranteed to remove the risk entirely but they help to minimise the impact
easier to apply to internal risks than external risks

Question 10

examples of preventative measures ?

Answer 10

water sprinklers, back up of IT systems, staff training

Question 11

what does ISO 3100 help firms with ?

Answer 11

can help firms to improve the identification of risks and effectively and efficiently allocate resources for its management so helping them to achieve their objectives

Question 12

what does ISO 3100 provide businesses with ?

Answer 12

a series of guidelines that they can follow to help reduce and manage exposure to risk

not compulsory so firms can choose not to apply to it
- offers a sound framework for risk management

Question 13

what are the key aspects of risks covered by ISO 3100 ?

Answer 13

• how to minimise risk
• acceptable levels of risk when pursuing opportunities
• eliminating a source of risk
• sharing risk with another party or parties

Question 14

what are uninsurable risks ?

Answer 14

types of risks that the insurer is not ready to insure against simply because the likely future losses cannot be estimated and calculated

these risks cannot be measured or calculated

Question 15

examples of uninsurable risks ?

Answer 15

consumer demand, flooding, technological change

Question 16

what is an insurable risk ?

Answer 16

a risk that meets the ideal criteria for efficient insurance

is not so big or catastrophic that an insurance company is not able to pay out upon a claim

Question 17

for a loss to be insurable, the loss must be :

Answer 17

• due to chance
• be definite and measurable
• must be predictable
• the loss cannot be catastrophic

Question 18

what are contingency plans ?

Answer 18

an agreed course of action that a business and its employees will adopt should things go wrong

constructed with ‘worst case scenario’ in mind

Question 19

what are the main aims of a contingency plan ?

Answer 19

to contain and minimise the damage to persons or property

to allow the main operational functions of the business to continue

Question 20

examples of when contingency plans are created ?

Answer 20

flood, fire, death of key employee, cyber attack, terror attack, pressure group activity, supplier failure

Question 21

advantages of contingency plans ?

Answer 21

it reassures stakeholders that the firm is aware of risks and has a plan of action available

managers have to spend less time ‘firefighting’ should a crisis actually occur as they have already planned out a response

public relations are better managed in time of a crisis, pre-prepared press releases can buy a firm time to assess their full response

Question 22

disadvantages of contingency plans ?

Answer 22

takes up valuable management time that could have been spent elsewhere

no guarantee that a plan will be effective in dealing with risk as events are highly variable

plans can encourage inflexibility in how a business handles a crisis

the plan needs constant updating as the business environments change

Question 23

insurance

• other contingency strategies

Answer 23

ensure that insurance cover is regularly checked and updated to provide sufficient cover in case of need
insurance cover is expensive and smes may not take any out

Question 24

contingency cash fund

• other contingency strategies

Answer 24

keep back a certain amount of cash to be able to finance any sudden emergency
has an opportunity cost for the business

Question 25

alternative production facilities

• other contingency strategies

Answer 25

manufacturers should try and have alternative arrangements in place for the production of their goods in case of an emergency
subcontracting is expensive and you lose direct control over quality

Question 26

what is crisis management ?

Answer 26

the process by which a business deals with an unexpected event that threatens to harm the business and its stakeholders

Question 27

how do risk management and crisis management differ ?

Answer 27

risk management - assessing potential threats and finding the best ways to avoid those threats
crisis management - dealing with threats before, during and after they have occurred

Question 28

what are the common features to a crisis ?

Answer 28

it presents an immediate threat to a firms survival, it is unexpected, decisions have to be made quickly

Question 29

crisis management

Answer 29

management will differ between businesses but they all rely upon an effective contingency plan to be in place

the plan must be communicated to everyone so people know what to do if it was to happen

senior management need to lead the process of crisis management and to coordinate a firms response

e.g. kfc ran out of chicken