Prelims Flashcards
(32 cards)
The category of risk that cannot be controlled and has two outcomes: complete loss or no loss at all. There are no opportunities for gain or profit when pure risk is involved. Pure risk is generally prevalent in situations such as natural disasters, fires, or death. These situations cannot be predicted and are beyond anyone’s control.
Pure risk
Risks that involve losses brought about by acts of nature or by malicious and criminal acts by another person. These losses refer to damages or loss to property or entity that is not caused by the economy. In these cases, there is a financial loss to the insured party.
Static risk
The risk brought on by sudden and unpredictable changes in the economy. As an example, this can occur through changes in pricing, income, brand preference or technology. These changes can bring about sudden personal and business financial losses to those affected.
Dynamic risk
The category of risk that, when undertaken, results in an uncertain degree of gain or loss. All speculative risks are made as conscious choices and are not just a result of uncontrollable circumstances. Since there is some chance of either a gain or a loss, speculative risk is the opposite of pure risk, which is the possibility of only a loss and no potential for gain.
Speculative risk
A group of actions that are integrated within the wider context of a company organization, which are directed toward assessing and measuring possible risk situations as well as elaborating the strategies necessary for managing them. the process of analyzing exposure to risk and determining how to best handle such exposure.”
Risk Management
Every organization is affected to varying degrees by various factors in its environment (Political, Social, Legal, and Technological, Societal etc)
Organizational Context
The risk management process should involve the stakeholders at each and every step of decision making. They should remain aware of even the smallest decision made. It is further in the interest of the organization to understand the role the stakeholders can play at each step
Involvement of Stakeholders
When dealing with a risk it is important to keep the organizational objectives in mind. The risk management process should explicitly address the uncertainty. This calls for being systematic and structured and keeping the big picture in mind.
Organizational Objectives
In risk management communication is the key. The authenticity of the information has to be ascertained. Decisions should be made on best available information and there should be transparency and visibility regarding the same.
Reporting
Risk Management has to be transparent and inclusive. It should take into account the human factors and ensure that each one knows it roles at each stage of the risk management process.
Roles and Responsibilities
Support structure underlines the importance of the risk management team. The team members have to be dynamic, diligent and responsive to change. Each and every member should understand his intervention at each stage of the project management lifecycle.
Support Structure
Keep track of early signs of a risk translating into an active problem. This is achieved through continual communication by one and all at each level. It is also important to enable and empower each to deal with the threat at his/her level.
Early Warning Indicators
Keep evaluating inputs at each step of the risk management process - Identify, assess, respond and review. The observations are markedly different in each cycle. Identify reasonable interventions and remove unnecessary ones.
Review Cycle
Brainstorm and enable a culture of questioning, discussing. This will motivate people to participate more.
Supportive Culture
Be capable of improving and enhancing your risk management strategies and tactics. Use your learning’s to access the way you look at and manage ongoing risk.
Continual Improvement
Typical Areas of Organizational Risk
Financial
Commercial
Strategic
Technical
Operational
New hardware, software or system configurations can trigger risks, as can new demands on existing information systems and technology. In early 2010, Metro Manila Development Authority Chair introduced a congestion change for traffic using the center of the city, the greatest threat to the scheme’s success (and his tenure as chair) was posed by the use of new technology. It worked and the scheme was widely seen a success.
Technology
Risks are triggered by, for example, new management structures or reporting lines, new strategies and commercial agreements (including mergers, agency or distribution agreements).
Organizational change
New products, markets and acquisitions all cause change and can trigger risks. The disastrous launch of “New Coke” by Coca-Cola was an even bigger risk than anyone at the company had realized; it outraged Americans who felt angry that an iconic US product was being changed. That Coca-Cola eventually turned the situation to its advantage shows that risk can be managed and controlled, but such success is rare.
Processes
Hiring new employees, losing key people, poor succession planning, or weak people management can all create dislocation, but the main danger is behavior: everything from laziness to fraud, exhaustion and simple human error can trigger this risk.
People
Changes to regulation and political, economic or social developments can all affect strategic decisions by bringing to the surface risks that may have lain hidden. The economic disruption caused by the sudden spread of the SARS epidemic from China to the rest of Asia in 2003 highlights this risk.
External factors
is used to monitor and manage the results of past decisions, assess the current situation and highlight solutions.
Variance analysis
is when sales cover costs, where neither a profit nor a loss is made. It is calculated by dividing the costs of the project by the gross profit at specific dates, making sure to allow for overhead costs. Break-even analysis (cost-volume-profit or CVP analysis) is used to decide whether to continue developing a product, alter the price, provide or adjust a discount, or change suppliers to reduce costs. It is also helps in managing the sales mix, cost structure and production capacity, as well as in forecasting and budgeting
The break-even analysis
