Risk Flashcards
Risk
Potential for disadvantage in a situation where we could get benefits from it
Risk is contextualised
The more you know about the context in which you’re making the bet, the more you have control of the risk
Danger
The undesirable outcome, unintended consequences, linked to personal/intimate effect
Why do we do risk analysis?
A company not aware of risks is not taking advantage of knowing about these - wasting its capacity.
Not to control environments/uncertainties that are out there, but to control the effect of them: defensive moves and strategy
Strategic decisions
- Aimed towards final goal
- Defensive actions: prevent ourselves from bad consequences
General schema of risk analysis
- Assess nature of environment
- Audit environmental influences
- Identify key competitive forces
- Identify strategic position
- Identify key opportunities and threats
- Strategic position
Strategic drift (frog diagram)
When something in environment is changing, companies change in a step-wise fashion, but are not changing as fast as the environment. The company becomes chaotic (feeling of uncertainty) - making decisions whilst not being connected sufficiently with the environment. Two outcomes:
- Either a paradigm shift takes place
- Or you going downhill
Data source
- Data on our own organisation
- Data on outside world
- Objective values (should be changing with environment)
- Process values: way we do things, take data on our organisation to get objective values (consider different cultures)
Nested constrains
We live in an environment that is highly constrained - we should know what these constrains are
- Local policy and issues > regional policy > home policy > foreign policy
- Morality and ethics, budgets come across all these nests
- Policy context of a firm is complex and hierarchical and is perceived polyvalently
PEST
What factors are affecting the organisation when you move your operation from one geographical context into another?
- Political/legal
- Economic
- Sociocultural
- Technology
PEST product
- Key environmental influences
- Drivers of change
- Differential impacts
- Resource resistance/efficiencies
Relation of strategy to SWOT
- Strengths, Weaknesses, Opportunities, Threats
- You only have strengths when it has a reality, all these work together
- Environment and resources drive decisions - leads to strategy, strategy feeds back to environment and resources (strengths and weaknesses)
Using SWOT in pairs
- Would this opportunity offset our weaknesses?
- Would this opportunity play to our strengths?
- Would this threat adversely affect our strengths?
- Does this threat exacerbate our weaknesses?
Political risk - Macro vs Micro
Effect of host government’s policy
- Macro political risk analysis: major political decisions likely to affect all enterprises
- Micro political risk analysis: policies and actions that influence selected sectors of the economy or specific
Risk and changes to conditions
Risk arises from changes to conditions assumed on market entry - challenge assumptions
- Political changes: government, political unrest, revolution/war
- Economic changes: slowdown, recession, depression, fiscal crisis
- External changes: terrorism, climate change
- Operational changes: change to transport infrastructure, power supply
