Chapter 1 - Identifying Risk

Question 1

2 main categories of risk

Answer 1

• Strategic - position of company in its environment e.g. financial risk
• Operational - normal business e.g. systems/PPE/human capital

Question 2

Product Risk

Answer 2

Success of product different to expected, linked to reputation risk

Question 3

Commodity Risk

Answer 3

Fluctuations in commodity prices

Question 4

Market Risk

Answer 4

Adverse change in value of asset

Question 5

Political Risk

Answer 5

Any politically motivated interference in business activities

• home govn
• host govn
• local govn
• illegitimate authority e.g. crime gang/trade union

Hostility : govn, local people, suppliers

Question 6

Social Trends

Answer 6

Changes in society make business obsolete

Question 7

Technological Risk

Answer 7

Change in technology render products obsolete

Question 8

Industry Specific Risk

Answer 8

Only relate to particular industry

Question 9

Competitor Related Risk

Answer 9

Arsing from actions of competitors

Question 10

Financial Risk

Answer 10

Financial conditions worse than expected e.g. interest rates, foreign exchange

Question 11

Financing Risk

Answer 11

Not able to raise finance

Question 12

Fraud Risk

Answer 12

Fraud by employees

Question 13

Ethical Risk

Answer 13

Policies/employees viewed as unethical

Question 14

Business Probity Risk

Answer 14

Unethical behaviour of individual e.g. leaking confidential information

Question 15

Environmental Risk

Answer 15

Impact on natural environment

Question 16

Information Systems Risk

Answer 16

IT systems inadequate e.g. viruses/data protection

Question 17

Risks in IS/IT systems

Answer 17

• Physical
• Viruses / Hacking
• Technical failure e.g. hard disk
• Infrastructure failure e.g. internet
• Human error
• Theft
• Business interruption e.g. fire/flood

Question 18

Risks of international operations

Answer 18

• Cultural differences
• Transit risk
• Credit risk
• Economic risk e.g. exchange rates

Question 19

General types of risk

Answer 19

• Pure - outside entities control
• Gross - acknowledges, but does nothing about
• Net - residual risk after taking appropriate action

Question 20

Mitigating political risk

Answer 20

Build effective relationships with local stakeholders

• political lobbying
• joint venture/local acquisition
• invest in local community / employ local people
• source local raw materials
• respect local laws/traditions

Question 21

Macro-economic risk

Answer 21

Probability/liklihood that levels of general economic activity will infludence the performance of the entity

Mitigating - spread+diversify operations/product portfolio around the globe

Question 22

Reputational Risk

Answer 22

Incidents/situations/actions that can influence the perception of an entities brand

Mitigating

• Robust supplier selection procedures + ongoing review
• Robust disciplinary process
• Robust recruitment + procedures
• PR/Social media
• Legal constraints “non-disclosure clauses”
• Speedy response

Question 23

Risk (defn)

Answer 23

Probability/liklihood that actual results will deviate from planned results

• Better (favourable) - “enjoyed” upside risk
  
  • Exploit
• Worse (adverse) - “suffered” downside risk
  
  • Mitigate