Strategy & Governance Flashcards
What is the process for contingency planning? `
- Identify the risks — The critical processes and strategies of the business should be reviewed to identify the associated risks.
2, Prioritize the risks — The likelihood and impact of each risk should be assessed and this should help a business identify its top risks.
- Develop a plan — A contingency plan should be developed for the top risks that have been identified. The main consideration in the plan is to define what needs to be done in order to attain “business as usual” and the time period it should be done in with the limited resources available.
- Maintain the plan — The plan should be reviewed and updated periodically so that it remains relevant.
What are some areas where contingencies may arise?
What is enterprise risk?
Enterprise risk is the risk of an event occurring that may reduce the likelihood that the organization will achieve its objectives.
What is enterprise risk management?
Enterprise risk management (ERM) is a process designed to manage the trade-off between potential opportunities and their adverse effects.
What is strategic risk?
The risk associated with ineffective strategic decisions, improper application of decisions made by management, or lack of responsiveness by management to the changing business. Strategic risk is also linked to a company’s mission and objectives.
What is operational risk?
The risk resulting from ineffective operations, failed practices, large swings in the rate of returns, and inadequate allocation of resources (capital and human).
What is reporting risk?
The risk associated with misleading or inaccurate information being reported.
What is compliance risk?
The risk resulting from the failure to comply with current or changing laws and regulations.
What are some techniques companies can use to assess risk?
- benchmarking: external comparison to industry peers or other industries
- probabilistic models: using past data and artificial intelligence to make predictions about future performance
- sensitivity models: surveying the results of a number of variables to study the uncertainty of those inputs
- scenario analysis: also referred to as “what-if” analysis, it describes the estimated outcome if a certain situation were to take place
What are possible responses management can take to address risk?
Avoidance — The company doesn’t take on the risk and forfeits the potential benefits. This is a good strategy when the benefits are small or infrequent, given the potential risks and costs.
Reduction — The company takes the risk, but tries to reduce the total exposure to the risk. This is done by introducing controls or processes.
Transferring — The company accepts the risk, but does not bear the entire risk on its own. The organization will transfer or share the risk with other parties. Common risk-sharing techniques include purchasing insurance products, pooling risks, engaging in hedging transactions, or outsourcing an activity.
Acceptance — The company takes on the risk and accepts the potential consequences, as the company has evaluated that the potential benefits outweigh the costs.
What is contingency planning for a company?
A formal planning process for understanding and mitigating events/ risks that may have a detrimental impact on the operation of the business.
* A contingency plan is the formal documentation of this.
What is the final step of the risk management process, and how can it be performed?
Monitoring any changes: As time passes, the risks that organizations face will change. Risk responses that were once effective may become irrelevant. Control activities may become less effective or may no longer be performed. The company’s strategic objectives may change. This can be due to changes in technology, new products entering the market, new regulations, or new competitors. In the face of change, management needs to ensure the ongoing effectiveness of the risk management system.
How to perform:
1. Self-evaluation - Company may have self-assessments or certifications performed, to ensure risk management process performed on regular/ routine basis.
2. Separate review - Company may use internal audit department (independent of risk process) to review processes.
(Generally a mix of both)
SWOT: what to include when discussing strengths?
- what does the company do well
- qualities that separate you from competitors
- internal resources, such as skilled knowledgeable staff
- tangible assets, such as intellectual property, capital, proprietary technologies, etc.
SWOT: what to discuss for weaknesses?
- things your company lacks
- things your competitors do better than you
- resource limitations
SWOT: what to discuss from opportunities?
- underserved markets for specific products
- few competitors in your area
- emerging need for your products or services
- press/ media coverage of your company
