Risk Management

Topics: Risk management, Risk, Management Pages: 28 (9132 words) Published: February 18, 2014
Tutorial 7
2) What is strategy risk? What is the taxonomy of strategy risk? Strategy risk is a possible source of loss that might arise from the pursuit of an unsuccessful business plan. For example, strategy risk might arise from making poor business decisions, from the substandard execution of decisions, from inadequate resource allocation, or from a failure to respond well to changes in the business environment. The taxonomies of strategy risk are objectives, business plan, new business development, resources, stakeholder interests, corporate experience and reputation. Objectives are the basis for work and the assignment of work. It must be clearly stated and understood for a strategy to succeed. Business plan is intended to be a communication tool. The plan’s ability to communicate the business strategy upon which it is based will determine the success of strategy. New business development is risks associated with plans for entering new business areas, expansion through mergers and acquisitions, providing new services and enhancing infrastructure. Resources is a risk category relate to a lack of comprehension of resource needs to meet objectives, a mismatch between objectives and existing resources, and technical ability of staff. Stakeholders are likely to have conflict of interests, so their requirement should be reflected in the business plan. If omitted, they could be the source of problems in the long term. A business’s corporate experience will reflect on the risk exposure profile of the business’s strategy. Issues reflecting corporate experience include knowledge of markets, customers, suppliers and the regulatory constraints of the industry. Reputation can present a serious risk to a business. A poor reputation can impede the sale of goods or services, deter desirable business partners and make debt more expensive to obtain. Question 1

Describe what are the FOUR (4) Financial Risk and FOUR (4) Operational Risk to business. -There is several type of financial risk to business. Firstly is the credit risk. A credit risk also known as default risk. This is the risk that the borrower defaults in making payment to the lenders. This will cause the lenders to losses their principal and interest they invested. The next financial risk is liquidity risk. This is the risk where the given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). Besides that, there was also interest rate risk in financial risk where the interest rate changes against the favor of the borrowers or lenders. Borrowers will seek for a low interest rate while lenders will seek for high interest rate. Last but not least, financial risk also includes market risk which is the risk that the value of your investment will decline as a result of market conditions. This type of risk is primarily associated with stocks. You might buy the stock of a promising or successful company only to have its market value fall with a generally falling stock market. -The four operational risk include

1 Internal Fraud – which is occur from fail of internal control of a company which include the misappropriation of assets, tax evasion, intentional mismarking of positions. 2 External Fraud- which is the threat of loss from the outside of the company which include theft of information, hacking damage, third-party theft and forgery. 3 Employment Practices and Workplace Safety – is the risk that possibly losses cause by employees during conduct their work. It includes discrimination, workers compensation, employee health and safety. 4 Business Disruption & Systems Failures – this is the hardware problem of a company which does not manage well and cause losses to a company. This includes utility disruptions, software failures, and hardware failures. Tutorial 7

Question 3
What is people risk? What is the taxonomy of people risk?
People risk can be described as a combination of the detrimental impact of employee...
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