7.4 Risk, reputation and strategy

Question 1

At its simplest, risk can be defined as any circumstance with more than one possible o________.

Answer 1

Outcome

Question 2

“Risk” refers to a range of understandable and quantifiable outcomes, whereas “uncertainty” suggests that although we can perceive a variety of outcomes, they are not q_________.

Answer 2

Quantifiable

Question 3

Risk appetite is the balance between ‘risk aversion’ and ‘risk s_______’.

Answer 3

Seeking

Question 4

What is “risk capacity”?

Answer 4

The maximum level of risk that can be taken and often that is required to be taken to achieve strategic goals.

Question 5

What is “risk tolerance”?

Answer 5

The level of risk willing to be accepted by a risk-taker.

Question 6

The problem with risk tolerance matrices is that they are often designed by individual managers will a particular desired outcome in mind, and so they may be b_______.

Answer 6

Biased

Question 7

Evans (2012) suggests that the concept of risk intelligence operates on a spectrum between complete i________ and certain k_________.

Answer 7

ignorance

knowledge

Question 8

List five types of risk.

Answer 8

Financial risk
Operational risk
Competition risk
Environment risk
People risk

Question 9

In financial risk, what is a highly geared entity?

Answer 9

An entity will a high ratio of debt to equity.

Question 10

One major factor in operational risk is r_________ damage.

Answer 10

Reputational

Question 11

Give an example of a corporate event that caused major reputation damage.

Answer 11

Enron/Arthur Anderson fraud
Deepwater Horizon spill (BP)
Starbucks corporation tax cover up
Volkswagen emissions falsification
KFC chicken shortage (logistics issue)

Question 12

What is competition risk?

Answer 12

The threat of loss of market share to a competitor.

Question 13

How have Tesco/Lidl/Sainsbury’s mitigating loss of market share to Lidl/Aldi?

Answer 13

Advertising campaigns asserting superior quality over their rivals.

Question 14

What is competition risk?

Answer 14

The threat of loss of market share to a competitor.

Question 15

How have Tesco/Lidl/Sainsbury’s mitigating loss of market share to Lidl/Aldi?

Answer 15

Advertising campaigns asserting superior quality over their rivals.

Question 16

What is the most common type of environmental risk?

Answer 16

Reputational risk

Question 17

What type of risk represents tax-avoidance?

Answer 17

Environment risk (i.e the tax environment)

Question 18

What is people risk?

Answer 18

Risks due to people, including press leaks, reputational issues, whistleblowers etc.

Question 19

In many organisations, the transition and measurement of risk is designed around the use of k__ __________ _______

Answer 19

key performance indicators

Question 20

What four requirements are there to use KPIs to measure risk?

Answer 20

A closely defined set of measures
Accurate trusted data to ensure integrity
Measures that are strategically relevant
Indicators with a forward impact - i.e. something can be done about the measure

Question 21

What is the name for a formal framework to allow an organisation to list, categorise and weigh risk?

Answer 21

A risk register.

Question 22

Some organisations will use a r____ m_____ to analyse the severity of a risk against a probability.

Answer 22

risk matrix

Question 23

What are the advantages and disadvantages of risk matrices?

Answer 23

Advantages: easy to develop and understand.
Disadvantage: lack of timeframe and no indication of what underlying data was used to generate the matrix.

Question 24

What is Principle O of the UK Corporate Governance Code (2018)

Answer 24

The Board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.

Question 25

It is generally accepted that internal risk controls must include three dimensions. What are these?

Answer 25

1 Identification
2 Evaluation
3 Mitigation

Question 26

Reputation can be defined as “the b______ or o________ that are generally held about someone or something.

Answer 26

beliefs or opinions

Question 27

List 7 types of risk that could cause reputational damage.

Answer 27

7 options:

Natural
Operational
People
Governance
Human
Commercial blindness