Chapter 7 - Risk management processes

Question 1

Companies that would benefit from active risk management

Answer 1

Products with high added value, high production quality

Products with high costs of switching to another line

Products where value depends on complimentary services from indep companies

High sale growth opportuities

Question 2

Financial distress can cause further problems:

Answer 2

Producing poor quality goods
Less safe working environment
Cutting back longer term investments
Exiting promising business lines
Lower share price
Less ability to take advantage of tax credits

Question 3

Risk can form part of a company’s strategy including decisions on aspects such as:

Answer 3

Degree tow hich risky products/projects are undertaken

Degree/type of risk transfer and hedging used

Management of company’s gearing ratio

Question 4

Risk controls in monitoring/modification stage should be:

Answer 4

COMATES

C   Congruent
O   Operational
M   Meaningful
A    Appropriate
T    Timely
E    Economical
S    Simple

Question 5

An ERM process (Sweeting cycle)

Answer 5

Indentification
Assessment
Management
Monitoring
Modification