Understanding The Operating Environment Flashcards
How can an organization partially control the external operating environment?
Disrupting the environment which can be through the leveraging of technology in a different way.
The impact of operating environment on organization
It affects how organizations behave and whether or not they are able to achieve their objectives.
How can organizations compete successfully?
Business owners and managers must continuously monitor and analyze the environment and adapt their strategies accordingly.
How can business leaders make effective decisions?
They need to understand the operating environment and the organization’s relationships with stakeholders in the environment.
What are the tools for analyzing operating environment?
- Porter’s Five Forces
- PESTEL framework
- Enterprise Risk Management
- Scenario analysis or planning
- SWOT analysis
- Environmental and horizon scanning
What is the Porter’s Five Forces model?
It is a framework for assessing and evaluating the competitive strength and position of a business organization.
PESTEL framework
It is used to categorize factors identified from monitoring or scanning the external operating environment in which an organization exists.
Enterprise Risk Management
It is the process of identifying and addressing the potential events that represents risks to the organization’s achievement of strategic objectives or to opportunities to gain competitive advantage.
What are the fundamental elements of Enterprise Risk Management?
- Assessment of significant risk
2. Implementation of suitable risk responses
Risk responses include;
- Acceptance or tolerance of risk
- Risk avoidance (for eg. Through avoiding an activity)
- Risk transfer or sharing via insurance or joint venture.
How can risks be reduced or mitigated?
Through internal control procedures or other risk prevention activities.
Risk heat map
A risk heat map presents the results of a risk assessment process visually and in a meaningful and concise manner.
Risk heat maps provide a visual, holistic view of the organization’s risk profile. They may be used as part of the strategic decision making process by enabling the consideration of the organization’s risk capacity, risk appetite and risk tolerance.
Heat maps
Heat maps present the results of evaluations of the probability of risk occurrence and the expected impact on the organization.
The 5x5 heat map diagram provides an illustration of how organizations can map probability ranges to common qualitative characteristics of risk event likelihood and a ranking scheme for potential impacts.
SWOT Analysis
This helps to identify strengths, weaknesses, opportunities and threats relevant to a business.
How is SWOT analysis usually presented?
By the use of a 2x2 matrix
