Chapter 9 Risk section ABC

What is Risk Management?

The process of developing strategies on how to deal with different risks.

Define Risk in a business context.

Risk is the likelihood of an uncertain event occurring, involving exposure to danger, harm or loss.

What are the five main types of risks a business may face?

1. Strategic risk 2. Compliance risk 3. Operational risk 4. Financial risk 5. Reputational risk

What is the main aspect of Strategic risk?

When the business strategy fails or the business struggles to reach its goals.

What could lead to Compliance risk in a business?

Failing to comply with existing regulations or new laws.

What is an example of Operational risk?

An unexpected failure in day-to-day business operations, such as load-shedding or water outage.

What is Financial risk?

A financial loss due to cash flow problems or a lot of debt.

What is Reputational risk?

Damage on the image of the business resulting in loss of revenue.

List the basic steps of the Risk Management Process.

1. Risk identification 2. Risk analysis 3. Risk assessment 4. Risk mitigation 5. Risk monitoring.

What does Risk identification involve?

Identifying and defining potential risks that may negatively affect the business.

What is the purpose of Risk analysis?

To gain insight on the impact of risk in the business.

How is Risk assessment defined?

Determine if the risk is acceptable to the company.

What is Risk mitigation?

Assess all risks and develop plans to alleviate them.

What does Risk monitoring entail?

Follow-up and review the risk process, track existing and possible risks.

What is a Feasibility Study?

A preliminary investigation to assess potential benefits of undertaking a new project.

What are the types of feasibility studies?

1. Market feasibility 2. Operational feasibility 3. Economic feasibility 4. Legal feasibility 5. Schedule feasibility 6. Resource feasibility 7. Financial feasibility 8. Technology feasibility.

What role does the Chief Financial Officer (CFO) play?

Maximize profit and create wealth for shareholders.

What is the purpose of budgeting in a business?

To plan the estimated financial needs and control the income & expenditure.

What is the Break-Even Point (BEP)?

The level of output where the business has neither a profit nor a loss.

What are Fixed Costs?

Costs that remain constant regardless of changes in the level of production.

What are Variable Costs?

Costs that change as the level of production changes.

Define Controllable Costs.

Costs that the business can influence through decision-making.

What are Non-controllable Costs?

Costs that the business cannot influence.

What does the Pricing Policy in marketing aim to achieve?

To set prices in a way that maximizes profit, sales volume, market share, or ensures survival.

What influences a Selling Price?

Factors such as price discrimination, psychological pricing, perceived value pricing, and promotional pricing.

What is Diversification in investing?

Investing in different assets to spread the risk and increase chances of higher returns.

What is Risk Profiling?

Determining the type of investment/asset suitable for the investor by assessing risk tolerance.

What is the purpose of insurance?

To cover potential losses against events such as damage, fraud, theft, or loss of life.

What are the types of assurance?

1. Life assurance 2. Term assurance 3. Endowment 4. Retirement annuity 5. Disability cover 6. Trauma cover 7. Funeral cover.

What makes a valid insurance contract?

Good faith, contractual capacity, insurable interest, intention to bind, executability, obligation, communication of intent.

Define Insurable Risks.

Types of risks that can be insured, such as fire insurance and vehicle insurance.

Define Non-Insurable Risks.

Types of risks that cannot be insured, such as operational risks and losses due to war.

What is Public Relations (PR)?

Building and maintaining a positive image of the business with stakeholders.

What are some key PR objectives?

Maintain a positive image, promote internal marketing, build product awareness, create interest.

What are Public Relations Tools?

Media relations, newsletters, public speaking engagements, and special events.

Public Relations vs Publicity: What's the difference?

PR maintains a positive image while publicity is based on media perception.

What are the advantages of Public Relations?

Cost-effective promotion, greater target market reach, and stronger media influence.

What are the disadvantages of Public Relations?

Unpredictability of results, lack of control over the message, and potential loss of efforts.

What is the importance of having insurance?

To cover potential losses from damage, fraud, theft, or loss of life.

What is the significance of the Road Accident Fund?

Covers innocent drivers and passengers against financial losses from road accidents.

What does the term Assurance imply?

Security and cover for long-term risk.

What is Occupation Insurance (UIF)?

Covers employees against loss of income in case of job loss.

How does the market feasibility study function?

Evaluates the location and demographics of a chosen target market.

What types of costs are involved in Cost Analysis?

Fixed costs, variable costs, controllable costs, non-controllable costs.

What defines a Life Assurance?

Covers for the loss of life and remains valid as long as premiums are paid.

How do businesses set prices?

Based on pricing objectives like profit-making, sales volume, market share, and survival.

What is Psychological Pricing?

Setting prices that make goods seem cheaper, like pricing at $99 instead of $100.

What is the risk associated with Bonds?

Capital can fluctuate while interest payments remain higher.

What risk does investing in Equities entail?

High volatility due to fluctuating share prices based on market influences.

What is the benefit of diversifying investments?

To minimize risk and stand a greater chance of higher returns.

What types of risks are insurable?

Fire insurance, vehicle insurance, fidelity insurance, group life cover.

Name two examples of Non-insurable risks.

Operational risks and losses caused by war.

What does it mean to have Insurable Interest?

Proving financial loss if the insured object is destroyed or damaged.

What does trauma cover cover for?

Serious illnesses like cancer or heart attacks, paying a predetermined amount.

What distinguishes PR from marketing?

PR promotes the image of the business while marketing aims to sell products.

What are the four major asset classes in investments?

Cash, property, bonds, and shares.

What are the risks of investing in Cash?

Not guaranteed protection against inflation; value decreases with rising inflation.

What benefit does investing in Property provide?

Can keep up with inflation and has a leverage effect.

What is the expected outcome of a successful Public Relations campaign?

To create a positive perception of the business and its products.

What is the general role of a CFO?

To control financial matters and ensure capital for business operations.

What does Risk culture refer to?

The shared values and behaviors regarding risk-taking and risk management within an organization.

What aspect does Risk monitoring primarily assess?

Tracking existing and potential risks over time.