Chapter 2 - Risk Management Strategy

Question 1

CIMA Risk Management Strategy

Answer 1

• Establish risk management group + set goals
• Identify risk areas
• Evaluate scale of risk
• Risk response strategy
• Implement Strategy/ Allocate responsibilities
• Implement + Monitor suggested controls
• Review / Refine process and do it again

Question 2

Establish a risk management group and set goals

(CIMA Risk Management Strategy)

Answer 2

• Risk appetite? determined by?
• Risk Manager - instill culture of risk awareness
• Risk management function
• Risk committee - majority NEDs

Question 3

Identify Risk Areas

(CIMA Risk Management Strategy)

Answer 3

• Risk audit (SWOT)
  
  • Internal - value chain, 9 M’s, BCG
  • External - PEST, 5 forces, Diamond
• Risk register
• Who? - top down/bottom up, external consultant, risk manager

Question 4

Evaluate Scale of Risk

Answer 4

• Risk map - probability/impact
• High/Medium/Low
• Use regression/Monte Carlo to determine probability/impact

Question 5

Risk Response Strategy

(CIMA Risk Management Strategy)

Answer 5

• TARA
• Portfolio theory - diversification / market expansion

Transfer

• Insurance - doesn’t deal with liklihood/reputation risk
• Outsource
• Training (e.g. manual handling course)
• T+C’s / disclaimer
• Operating lease

Reduce

• Internal controls

Question 6

Implement Strategy/ Allocate Responsibilties

(CIMA Risk Management Strategy)

Answer 6

Hierachy

• High risk - senior manager/board
• Medium risk - middle management
• Low risk - operational level

Function/dept

• FX exposure - finance
• Website - IT
• Social media - PR

Question 7

Implement / Monitor suggested controls

(CIMA Risk Management Strategy)

Answer 7

• Regular communication - key risks, what expected from people
• Risk report as part of annual report
• Internal audit

Question 8

Why be risk-seeking?

Answer 8

• Higher risk/higher return
• Acts as barrier to entry
• Only option for growth
• Can attract particular type of investor
• May attract certain calibre of employee

Question 9

Risk Appetite

Answer 9

• Risk seeking
• Risk neutral
• Risk adverse

determined by:

• Risk attitude - how much risk the decision makers can tolerate
• Risk capacity - how much risk the investors can tolerate