Risk Management - Bailey PDF

RISK MANAGEM ENT Uncertainty running a business: The economy of the country is uncontrollable E.g. economic growth vs recessions The economy on a global scale is uncertain E.g. government elections (USA) and BREXIT (UK) Political Developments E.g. Corrupt government of...

RISK MANAGEM ENT Uncertainty running a business: The economy of the country is uncontrollable E.g. economic growth vs recessions The economy on a global scale is uncertain E.g. government elections (USA) and BREXIT (UK) Political Developments E.g. Corrupt government officials and State Capture Technological advances E.g. Large scale automation and the impact on employment Changes in legislation E.g. BBBEE and UIF Changes in consumer demands E.g. Healthier foods and cleaner energy Risk and Strategic Management Taking risks is a natural part of any business venture, managers should be aware of and plan for the variety of risks that exist. RISK MANAGEMENT: Analysing the probability of an event taking place and then proactively planning to minimise the possible negative impact on the business.  Risk = uncertainty Risks can be seen in Risk = threat a number of ways: Risk = opportunity Risk Strategy: (Vision, Mission, Value Statement, manageme Structure, goals & objectives) nt Risk Management: integrated The alignment between business strategy and operations into Business Operations: strategic Implementing policies, managing processes. Monitoring and planning: controlling daily activities. Risk Management in Practice: 1. Risk Profile: The degree that a business is willing to accept risks in pursuit of creating value or achieving business goals. The business needs to achieve a balance between business growth and return and risk. 2. Risk Culture: The collective attitude in the business towards accepting risks. Rewards for risk taking vs rewards for avoiding risk taking behaviour. Types of Risks: Operational Reputationa Country l Types of Risks Environmen Strategic tal Financial Operational Risks: Systems / Processes Organisational Structures People (management / employees) Product Development Data storage and security Country Risks: Political Events Economic Conditions Regulatory Stability Environmental Risks: Flooding / Droughts Traffic Crime Socio-Economic Factors Technological Developments Level of competition Financial Risks: Credit Risk Fluctuations in exchange rates Interest rate increases Solvency Risks Bad Debt Investments that lack liquidity Reputation al Risks: Customer complaints Business causing environmental damage Conducting business with unethical businesses  Poorly formulated or communicated vision and mission statement Strategic Unrealistic goals Risks: Unsuitable organisation structure  Risks must be managed across all business functions = Holistic Approach Assess the type of risk in order to Managin understand the impact = Positive or Negative Capitalising on g Risks strengths Addressing weaknesses Exploiting competitors weaknesses  Risk Assessment: Estimation Risk Identificati Description of Risk Assessmen on of Risk of Risk Impact t  Risk Workshops Stakeholder Consultations Identificatio Benchmarking n of the Risk: Scenario Planning (WHAT IF…) Auditing Surveys Description of risks: 1. Describe any risks evident in the image. 2. For each risk, provide a suitable strategy to overcome it. Estimation Tools used to evaluate the impact of the risk Pro’s and Con’s chart Cost / Risk benefit analysis Decision Trees PESTLE SWOT Risk Estimation Matrix High Probability High Probability Low Impact High Impact Estimation Matrix Low Probability Low Probability Low Impact High Impact  Drafted Risk Manageme Communicated nt Policy Implemented Risk RISK AVOIDANCE: Action is taken to prevent or limit the activities that lead to risk Response: E.g. Not entering a new market RISK REDUCTION: Action is taken to reduce the risk occurring or to mitigate the impact of the risk E.g. Strict control mechanisms (inspections RISK ACCEPTANCE: No action is taken to stop the risk or limit the impact as it may require more resources than available / viable E.g. Legislation changes Risk Reporting: INTERNAL EXTERNAL STAKEHOLDERS STAKEHOLDERS