Risk Management Chapter 12 PDF

# Risk Management Analysing the probability of an event taking place, and then proactively planning to minimise the possible negative impact of the event on the business Risk can be seen in a number of ways: - Risk as a mere uncertainty - Risk as a threat - Risk as an opportunity ## Risk Manageme...

# Risk Management Analysing the probability of an event taking place, and then proactively planning to minimise the possible negative impact of the event on the business Risk can be seen in a number of ways: - Risk as a mere uncertainty - Risk as a threat - Risk as an opportunity ## Risk Management Objective is to ensure a balance between business opportunities and threats ↳ risk management should be integrated into the strategic planning - **Strategy**: Vision, mission, value statement, organisational structure, goals and objectives - **Risk Management**: The alignment between business strategy and business operations - **Business Operations**: Implementing policies, managing processes, monitoring and controlling daily activities ## Risk Profile - The degree that a business is willing to accept risks in pursuit of creating value or to achieve goals. - Directly related to the business strategy; any business should try to achieve balance between growth, possible returns and risk. ## Risk Culture - Shared attitudes and practices in the business; collective attitude in the business toward accepting risks. - Result of businesses practices such as rewards for risk-taking or risk-avoiding business ## Types of Risks - **Operational risks:** - People (management/employees) - Product development - Systems and processes - **Country risks:** - Political events - Economic conditions - Regulatory stability/instability - **Environmental Risks:** - Flooding/droughts - Traffic - Crime rates - **Financial risks:** - Credit risk - Solvency risk - Fluctuations in exchange rates - **Reputational Risks:** - Customer complaints - Business causing environmental damage - Business conducting business with other unethical businesses - **Strategic Risks:** - A poorly formulated or communicated vision, mission and value statement - Unrealistic goals and an unsuitable organisation structure could present issues ## Risk Management | Risk Assessment | Risk Management Policy | Risk Response | Risk Reporting | |---|---|---|---| | Identification of risks | Description of risks | Estimation of risk impact | | | | | | | ## Estimation Tools - Pros/Cons Chart - Cost Risk Benefit Analysis - Decision Trees - PESTLE - SWOT ## Estimation Matrix | | High probability | Low probability | |---|---|---| | High impact | | | | Low impact | | | ## Risk Management Policy Risk management policy is to ensure a comprehensive policy is: - Drafted (developed in writing). - Communicated to all relevant parties. - Implemented in the business. ## Risk Response - **Avoided**: Prevent or limit activities that lead to risk. - **Reduced**: Limit the possibility of risk occuring. - **Accepted, but managed carefully**: No action is taken to stop risk ## Risk Reporting 2 areas: - **Reporting to Internal Stakeholders**: Reporting risk management information to people involved in decision making or performance reviews. - **Reporting to External Stakeholders**: When news is reported to people outside.