Block 11 Flashcards
(38 cards)
Business decision categories
CBD Or First Letter
- Big-bet decisions
- Cross-cutting decision
- Delegated decision
Conditions for decision making
CUR
Certainty
Risk
Uncertainty
Conditions for decision making
CUR
Certainty
Information is sufficient to predict the results of each alternative in advance of implementation
Conditions for decision making
CUR
Risk
Lack of complete certainty regarding various courses of action, but can assign probabilities to occurrences
Conditions for decision making
CUR
Uncertainty
So little information that they cannot even assign probabilities to various alternatives and possible results
Risk
The possibility that the event will occur and adversely affect the achievement of objectives
• Generally viewed as negative
• Anything that threatens a company’s ability to achieve its goals
Risk management
Coordinated activities to direct and control an organization with regards to risk
Process of identifying, monitoring managing, forecasting and evaluating risks and finding procedures to avoid or minimize their impact
Types of Risk
Big Furry Hamsters
Business
Financial
Hazard
Types of Risk
Big Furry Hamsters
Business
Will/won’t compete successfully in its operations
Types of Risk
Big Furry Hamsters
Financial
Will/won’t have adequate funds for its operations
Types of Risk
Big Furry Hamsters
Hazard
Exposures that can cause loss without the possibility of gain
Role of risk management in strategy performance
• Organisation regularly engage in strategic planning but they often don’t forsee all the risks that could derailed the effective execution of intended strategies
• Strategic management is dependent on how well an organization can determine and manage risk
• Necessary to ensure effective and efficient operations
• Essential for business continuity and the creation and protection of value
Enterprise Risk Management (ERM) definition
Pizza And Alcohol Every Rainy Afternoon
• Process
• Affected by BOD, management and personnel
• Applied in strategy setting and across the enterprise
• Designed to identify potential events that may affect the entity and
• and manage risk within its risk appetite
• to provide reasonable assurance regarding the achievement of entity objectives
COSO ERM Framework
(Definition)
Framework for designing, implementing and evaluating internal control organizations, providing enterprise risk management
COSO ERM Framework
(2 Types)
- COSO ERM - Integrated Framework (Cube) 2004
- COSO ERM - Integrated with Strategy and Performance (Ribbon) 2017
COSO ERM Framework (Top)
Name the 4 Objectives/Risks
Smart Owls Read Carefully
Strategic
Operating
Reporting
Compliance
COSO ERM Framework (Top)
Describe the 4 Objectives/Risks
Smart Owls Read Carefully
- Strategic: High level and aligned with an entity’s mission
- Operating: Effective and efficient use of resources
- Reporting: Need for reliable Reporting
- Compliance: Comply with applicable laws and regulations
COSO ERM Framework (Front)
Name the 8 Components
Invisible Octupus Mindlessly Eats Real Rainbow Ice Cream
Internal environment
Objective setting
Monitoring
Event identification
Risk assessment
Risk response
Information and Communication
Control activities
COSO ERM Framework (Front)
Describe 8 Components: Internal Environment
Invisible
Internal environment:
Encompasses the tone ‘at the top’ of the enterprise and influences the organisation’s governance process and the risk and control consciousness of its people
COSO ERM Framework (Front)
Describe the 8 Components: Objective setting
**Octupus*
Objective setting:
Process to set objectives
Objectives support and aligh with the entity’s strategy and are consistent with risk philosophy and appetite
Objectives drive event identification, risk assessment and risk response
COSO ERM Framework (Front)
Describe the 8 Components: Monitoring
Mindlessly
Monitoring: Ongoing tracking and evaluating to access the presense and functioning of ERM components and the quality of performance over time
COSO ERM Framework (Front)
Describe the 8 Components: Monitoring
Mindlessly
Monitoring: Ongoing tracking and evaluating to access the presense and functioning of ERM components and the quality of performance over time
COSO ERM Framework (Front)
Describe the 8 Components: Event identification
Eats
Event identification:
Identify potential (positive or negative) events (from internal or external sources) affecting achievement of objectives
Negative events represent risks
Positive event represent risk upside/opportunity
COSO ERM Framework (Front)
Describe the 8 Components: Risk assessment
Real
Risk assessment:
Qualitative and quantitative methods to evaluate the likelihood and impact of potential events over given time horizon
