Lesson 9 Flashcards
(25 cards)
What is business risk?
The chance that something will go wrong, potentially preventing a business from covering its operating expenses.
What factors influence business risk?
Profit margins, competitors, political/economic changes, and market demand.
Why is managing business risk important?
It determines how viable the business is and ensures operational expenses are covered.
What are the main types of business risk?
Financial
Reputational
Compliance
Operational
Economic
Security
Fraud
Can business risks be both internal and external?
Yes — risks can originate from inside or outside the business.
What is financial risk?
Risk related to a business’s ability to pay its debts.
What are the 4 categories of financial risk?
Credit risk: Customers fail to pay debts.
Market risk: Conditions change in the business’s market.
Liquidity risk: Assets can’t be quickly converted to cash.
Operational risk: Financial issues from daily business activities.
What is reputational risk?
The risk of losing goodwill from customers and stakeholders due to negative perceptions.
What can cause reputational damage?
Cyberattacks
CEO misconduct
Product recalls
Offensive products
Legal noncompliance
What is the impact of reputational risk?
Lost sales, profit reduction, loss of stakeholder confidence—can even lead to bankruptcy.
What is compliance risk (integrity risk)?
The risk of legal or regulatory violations.
What are examples of compliance risk?
Breaches of health/safety laws
Environmental law violations
Data privacy breaches
Corrupt or illegal activities
Ignoring internal policies
What are the consequences of compliance risk?
Employee termination, unlimited fines, or even jail for directors.
What is operational risk?
Threats to sales, cash flow, or profits from internal business failures.
Examples of operational risks?
Process/system failures
Human error
Supply chain disruption
Financial risks from daily operations
What is economic risk?
Risk arising from national economic changes affecting business activities.
Examples of economic risks?
Taxation changes
Interest rate changes
Unemployment levels
Changes in consumer income
How does economic risk affect business?
It influences ability to trade domestically or internationally.
What is security risk?
Threats to a business’s stability and continuity.
Two types of security risks?
Cyber security (data breaches, hacking)
Physical security (break-ins, theft)
How can security risks be managed?
By having protective measures, training staff, and limiting access.
What is fraud in a business context?
Misrepresentation or lying about intentions, actions, or services.
Who can commit fraud against a business?
Employees
Customers
Suppliers
External third parties
Why are businesses vulnerable to fraud?
Focus is often on growth, not on anti-fraud controls.
