RISK MANAGEMENT

What is risk in a business context?

Risk is the possibility that an event may occur that could have a negative impact on a business’s operations, finances, reputation or objectives.

What is risk management?

Risk management is the process of identifying, assessing and responding to risks to reduce their likelihood or impact on a business.

What types of risks do businesses face?

Businesses face risks including natural disasters, equipment or technology failure, employee error, supply problems, economic factors, legal challenges, public relations issues and product failures.

What are natural disaster risks?

Natural disaster risks include events such as floods, fires, earthquakes or extreme weather that can disrupt operations, damage assets and halt production.

What risks arise from failure of equipment or technology?

Equipment or technology failure can cause production stoppages, data loss, increased costs and reduced customer satisfaction.

How does employee error create risk?

Employee error includes mistakes, poor decision-making or lack of training, which can lead to accidents, inefficiency, legal issues or damage to reputation.

What are supply problems as a business risk?

Supply problems occur when suppliers fail to deliver inputs on time or at the expected quality, causing production delays or increased costs.

How do economic factors create risk for businesses?

Economic risks include inflation, recession, interest rate changes and exchange rate fluctuations, which can affect costs, demand and profitability.

What legal challenges pose risks to businesses?

Legal risks include changes in legislation, lawsuits, fines and regulatory breaches that can increase costs and damage reputation.

What are public relations risks?

Public relations risks involve negative publicity or damage to a business’s image due to poor customer service, unethical behaviour or crises.

What are product failure risks?

Product failure risks occur when products are faulty or unsafe, leading to recalls, compensation claims and loss of customer trust.

Why are some risks more certain to occur than others?

Some risks are more likely due to factors such as industry type, location or business activities, while others are less predictable.

How does the likelihood of risk affect spending on prevention?

Businesses are more willing to spend on preventing risks that are more likely or have severe consequences, while less likely risks may receive less investment.

What is risk assessment?

Risk assessment is the process of identifying potential risks, evaluating their likelihood and potential impact, and deciding how to manage them.

Why is risk assessment important?

Risk assessment helps businesses avoid or reduce risks by allowing them to prepare in advance, minimise losses and protect stakeholders.

What are preventative actions in risk management?

Preventative actions are measures taken to reduce the likelihood of risks occurring or limit their potential impact.

How do water sprinklers reduce risk?

Water sprinklers help reduce the damage caused by fires, protecting buildings, equipment and employees.

Why is backing up IT data an important preventative action?

Backing up IT data protects businesses from data loss caused by system failures, cyber-attacks or human error.

How does employee training help manage risk?

Employee training reduces the risk of errors, accidents and legal breaches by ensuring staff understand procedures and responsibilities.

What is the difference between insurable and uninsurable risks?

Insurable risks can be covered by insurance (e.g. fire or theft), while uninsurable risks cannot be insured against (e.g. loss of reputation).

Why are some risks uninsurable?

Some risks are uninsurable because they are difficult to quantify, unpredictable or would be too costly for insurers to cover.

What is contingency planning?

Contingency planning involves preparing plans to respond effectively if a risk occurs, ensuring business continuity.

What is crisis management?

Crisis management is the process of responding to a serious and unexpected event that threatens a business’s operations or reputation.

What is a contingency fund?

A contingency fund is money set aside to deal with unexpected events, such as emergencies or sudden cost increases.

How do alternative production arrangements reduce risk?

Alternative production arrangements allow businesses to continue operating if normal production is disrupted, for example by using another site or supplier.

Why is allocating responsibilities important in contingency planning?

Allocating responsibilities ensures employees and managers know their roles during a crisis, allowing for quicker and more effective responses.

How should businesses manage public relations during a crisis?

Businesses should communicate clearly, honestly and quickly with stakeholders to protect their reputation and maintain trust.

What are possible responses to risk?

Businesses may accept the risk, reduce it through prevention, transfer it through insurance, or avoid it by changing activities.

Why might a business choose to accept certain risks?

A business may accept risks if prevention is too costly or the likelihood and impact of the risk are low.

Why is risk management important to businesses?

Risk management helps protect profits, ensure continuity, reduce uncertainty and improve long-term stability.

Why is risk management important to stakeholders?

Risk management protects employees, reassures investors, ensures reliable supply for customers and helps meet legal responsibilities.

Why is contingency planning especially important for large businesses?

Large businesses face more complex risks and greater potential losses, making planning essential to protect operations and reputation.

Why might excessive risk management be a disadvantage?

Excessive risk management can be costly, reduce flexibility and discourage innovation.

Overall, why is risk management and contingency planning important?

They help businesses anticipate problems, respond effectively to crises, protect stakeholders and improve long-term success.