Risk Flashcards
Risk and Uncertainty
Risk = Can be quantified
Uncertainty = cannot be quantified
Risk formula
Impact x likelihood
Strategic Risk
Internal risk
based on strategy being right one + being implemented properly
Operational Risk
Internal Risk
Difficult to quantify
Legal and Regulatory Risk
Internal Risk
Reputational Risk
Internal Risk
Financial Risk
Internal Risk
Technological Risk
External Risk
Competitive Risk
External Risk
Stakeholder Risk
External Risk
Shocks and natural events
External Risk
Social and market Risk
External Risk
Economic Risk
External Risk
Political Risk
External Risk
Credit and Market RISK
Risks
Financial Risks too
Business and operational risk
uncertainties
Operational issues and legal (breaking law)
not financial risk
considered as separate risks
Assessment of Risks -
External Risks
PESTLE Political Economic Social Technological Legal Environmental
Assessment of Risks -
Internal Risks
SWOT Strengths Weaknesses Opportunities Threats
Effective Risk Framework
- Identify
- Assess
- Control of risk
- Monitor & report on risk and controls
- Day to day risk management
Risk assessment matrix
Impact vs likelihood and ranked
Ranking/prioritised part of risk register (assess)
Risk appetite
Quantifiable risk
- tolerance for direct losses
- special risk measures e.g. value at risk (VaR)
Less Quantifiable risk
- Disaster recovery
- Reputational risk tolerance
Approaches to assessing risk appetite
Top Down
- Start with strategy and objectives of firm to identify risks
Bottom up
- Look at the risks that crystallise
- Base risk tolerance on those
Scenario analysis
- Subjective method
- looks extreme events, future events and questions what impact might be
- Also known as stress testing = unexpected events
Risk Register
- Objectives
- Description of risk
- Risk ranking
- Lead person or department
- Action plan
- Target and completion dates
- Oversight
- Mitigating controls
