C.

    IDENTIFYING  AND  ASSESSING  RISK  

What  are  strategic  risks?  

Strategic  risks  are  risks  that  relate  to  the  fundamental  decisions  that  the  directors  take  about  the  future  
of  the  organization.  It  includes  decisions  for  the  type  of  resources,  mergers  and  acquisitions  and  exit  
strategies.  These  will  impact  on  costs,  prices,  products  and  sales,  and  also  the  sources  of  finance.  

Factors  that  influence  strategic  risk  include:  

• The  type  of  industries  or  markets  which  the  business  operates  
• The  state  of  the  economy  
• Actions  of  competitors  
• The  stage  in  the  product  life  cycle  
• Price  fluctuation  from  inputs  
• Level  of  operating  gearing  
• Its  research  and  development  capacity  and  innovative  skills  
• Significance  of  new  technology  

What  are  operational  risks?  

Operation  or  process  risk  is  the  risk  of  loss  from  a  failure  of  internal  business  and  control  processes.  It  
includes:  

• Losses  from  internal  control  system  or  audit  inadequacies  

• Non-­‐compliance  with  regulations  or  internal  procedures  
• Information  technology  failures  
• Human  error  
• Loss  of  key-­‐personnel  risk  
• Fraud  
• Business  interruption  –  stock  outs,  strikes  etc  

What  the  main  difference  between  strategic  and  operational  risks?  

Strategic  risks  relate  to  the  organization’s  long-­‐term  place  in,  and  relations  with,  the  outside  
environment.  Some  do  relate  to  internal  functions  but  have  a  key  bearing  on  the  organization’s  situation  
in  relation  to  its  environment.  Operation  risks  are  what  could  go  wrong  on  a  day-­‐to-­‐day  basis,  and  are  
not  generally  very  relevant  to  the  key  strategic  decisions  that  affect  a  business.  

Organizations  face  many  different  types  of  risk  and  these  include:  

• Financial  risks  
• Liquidity  risks  
 • Cash  Flow  risks  
• Gearing  risks  
• Credit  risks  
• Currency  risk  
• Interest  rate  risk  
• Finance  providers’  risk  
• Accounts  risks  
• Market  risk  
• Product  risk  
• Legal  risks  
• Political  risks  
• Technological  risk  
• Fraud  risk  
• Internet  risk  
• Health  and  safety  risk  
• Environmental  risk  
• Probity  risk  
• Knowledge  management  risk  
• Property  risk  
• Trading  risk  
• Trade  risk  Physical  risk  
• Disruption  risk  
• Cost  and  resource  wastage  risk  
• Organizational  risk  
• Entrepreneurial  risk  
• Reputation  risk  
• Industry-­‐specific  risks  

What  does  risk  identification  involve?  

Risk  identification  involves  looking  at  the  specific  events  and  conditions  that  could  result  in  risks  
materializing.  

Identifying  conditions  leading  to  risks  include:  

• Physical  inspection  
• Enquiries  
• Checking  
• Brainstorming  
• Checklists  
• Benchmarking  
Risk  identification  procedures:  

Risk  identification  procedures  will  have  costs  and  require  time  and  resources.  It  may  therefore  be  
influenced  not  by  a  desire  to  identify  all  risks,  but  instead  may  focus  on  identifying  unacceptable  risks.  

Exercises:  

• Case  study  165  

• Case  study  167  (and  question)  
• 170  question  
• Illustration  171  
• Case  study  173  
• Case  study  176  
• Case  study  178  (and  question)  

THE  END.