3.1: Risk Management Flashcards
3.1.1: Risk Management (23 cards)
What is risk management and what are two main difficulties businesses face in risk management?
Risk management is identifying, analyzing, and minimizing potential risks to reduce exposure. Two main difficulties are balancing probability vs. loss value and opportunity cost in resource allocation.
List 4 types of risks that businesses may face.
Natural disasters, employee error, equipment failure, product failures, economic factors, legal challenges, public relations failure, supply problems.
(Natural Disasters) Give an example of how a natural disaster affected business operations.
In 2010, an Icelandic volcano disrupted air travel, cancelling thousands of flights.
(Equipment Failure) What were the failures in the BP Deepwater Horizon case, and what were the consequences?
Failures included weak cement, faulty blowout preventer, and profit-driven design. It caused 11 deaths and £47bn in damages.
(Product Failure) What happened during Toyota’s 2010 product failure crisis?
Toyota recalled over 8 million cars due to brake issues linked to 89 deaths.
(Supply Problems) What caused KFC’s 2018 supply crisis and what was the effect?
Logistic failures from a new supplier led to chicken shortages and customer backlash.
What are quantifiable risks and how are they managed?
Measurable risks that allow for insurance and planning to reduce impact.
How would you classify these risks: change in fashion, horsemeat scandal, rise in interest rates?
Fashion – Strategic; Horsemeat – Compliance; Interest rates – Financial.
How is risk assessed using the matrix?
Multiply probability by impact to prioritize risks (1–9 scale).
What does ISO 31000 provide to businesses?
Non-compulsory guidelines to reduce risk and allocate resources efficiently.
List the five steps of a risk assessment.
Identify hazards, determine who is at risk, assess and act, record findings, review regularly.
What is vulnerability mapping?
Visual or strategic identification of areas most exposed to risk.
Give three internal preventative measures a firm can use.
Water sprinklers, IT backups, staff training.
What makes a risk insurable? and Name three examples of uninsurable risks.
Insurable: It must be accidental, measurable, predictable, and not catastrophic.
Uninsurable: Consumer demand, floods, technological change.
What are key features of effective contingency plans?
Fully communicated, up-to-date, relevant, and easy to use in crises.
Name two common problems with contingency planning.
Lack of top management commitment and outdated plans.
What actions did Rolls-Royce and Premier Foods take pre-Brexit?
Stockpiled parts and raw materials to avoid disruption.
Name one way a disaster affects each of the following: employees, suppliers, and government.
Employees – job loss; Suppliers – loss of trade; Government – less tax revenue.
How does a crisis typically impact a business’s marketing function?
A crisis can damage a firm’s public image. Effective communication is vital to reassure customers and control the narrative. The message must be clear and direct to retain trust.
What financial challenges can arise during crisis management?
Crises often require immediate cash outflows (e.g., PR, clean-up, legal costs). Liquidity is essential to manage these costs. Firms may negotiate an overdraft as a short-term funding solution.
How might business operations be affected during a crisis?
Production can be disrupted by contamination, supplier failure, or poor service. To limit impact, firms should prepare operational contingency plans to maintain service delivery.
What leadership style is most effective in a crisis, and why?
Autocratic leadership is effective as it allows for quick decision-making. It should be supported by trained staff and a control centre to manage internal and external communication with stakeholders
What went wrong with Ticketmaster’s Eras Tour ticket release in 2023?
The website crashed due to overwhelming demand. Ticketmaster was slow to respond and gave vague, unhelpful communication, worsening customer frustration and damaging trust.
