Risk Management

Question 1

Differentiate between strategic, operational, and market risk.

Answer 1

1. Strategic risk is relatively long-term and can be managed by continually assessing the competitive space in which the organization operates
2. Operational risk is short-term in nature and involves daily implementation issues
3. Market risk is associated with large-scale economic events or natural disasters that, to some extent, influence all companies.

Question 2

How is market risk best controlled?

Answer 2

Market risk can be controlled to some degree by insurance for specific hazard risks, but economic events often cannot be controlled. Thus, companies must assess their exposure to economic downturns and use sensitivity analysis to evaluate their position.

Question 3

How is operational risk best controlled?

Answer 3

Operational risk is best controlled by exceptional execution of the strategic plan. This is often enhanced by attention to customer credit checks, quality, employee training, and management expertise.

Question 4

How is strategic risk best controlled?

Answer 4

Strategic risk is best controlled by rigorous forecasting and planning, optimizing operating leverage.