DECA Set 4 - Governance Components, Enterprise Risk Management & Distribution Channels

List the components of a well-governed company.

Board of directors, reporting on issues, transparency in policy, and internal and external audit functions.

What is the role of the board of directors?

Elected by shareholders to oversee management, set strategic direction, and protect shareholders' interests.

How do internal and external audits differ?

An internal audit is performed by company staff to evaluate controls and processes. An external audit is performed by an independent accountant to verify the accuracy of financial statements.

Why is transparency in policy important?

Openly communicating policies and decisions builds trust, enables accountability, and helps stakeholders make informed choices.

Define enterprise risk management (ERM).

A company-wide, coordinated approach to identifying, assessing, and managing all risks that could affect the organization's objectives.

How does ERM differ from traditional risk management?

Traditional risk management handles risks in separate silos (such as insurance), while ERM integrates risk management across the whole organization and ties it to strategy.

Name categories of risk addressed by ERM.

Strategic, operational, financial, compliance (legal), and reputational risks.

What is the relationship between risk and reward?

Pursuing objectives involves risk, and higher potential returns generally come with higher risk (the risk-return tradeoff).

Define risk appetite.

The amount and type of risk an organization is willing to accept in pursuit of its objectives.

Why should risk management be aligned with business objectives?

It focuses resources on risks that threaten key goals and ensures that risk taking supports strategy.

Name four sources of business risk with an example of each.

Natural (fire, flood), human (theft, error), economic (recession, inflation), and technological (cyberattack, equipment failure).

What methods can a business use to identify risks?

Brainstorming, checklists, reviewing past losses, SWOT analysis, inspections, and feedback from employees and customers.

Give an example of an economic risk.

A recession that reduces consumer spending, or rising interest rates that increase borrowing costs.

How does qualitative risk assessment differ from quantitative risk assessment?

Qualitative assessment rates risks with descriptive categories (high, medium, low). Quantitative assessment assigns numerical values such as probability and dollar loss.

What two factors are evaluated when assessing each risk?

The likelihood that it will occur and the impact (severity) if it does.

What is the formula for risk exposure?

Probability of the event × potential loss.

Why are risks prioritized after assessment?

To direct limited resources toward the risks with the greatest exposure.

What are the steps in developing a risk management program?

Identify risks, assess them, select methods (avoid, reduce, transfer, accept), implement controls, and monitor and review results.

Give an example of risk reduction.

Installing sprinklers, providing safety training, or adding security systems.

Why must a risk management program be monitored?

Risks change over time, so monitoring verifies that controls work and allows updates.

Define channel management.

The process of selecting, working with, motivating, and evaluating channel members so that products move efficiently to customers.

What is included in the scope of channel management?

Selecting channel members, setting policies, motivating members, resolving conflicts, and evaluating performance.

What is channel conflict?

Disagreement among channel members over goals, roles, or rewards, such as a manufacturer selling directly in competition with its retailers.

Define channel of distribution.

The path a product takes from the producer to the final consumer or business user.

Name common channel members (intermediaries).

Wholesalers, retailers, agents and brokers, and distributors.

How does a direct channel differ from an indirect channel?

A direct channel sells from producer to consumer with no intermediaries. An indirect channel uses one or more intermediaries.

Name functions performed by channel members.

Transporting, storing, financing, promoting, risk taking, and sorting products.

What is intensive distribution?

Placing a product in as many outlets as possible. It is typical for convenience goods such as snacks and soft drinks.

What is selective distribution?

Using a limited number of outlets in an area. It is typical for shopping goods such as appliances and clothing.

What is exclusive distribution?

Granting one outlet the sole right to sell a product in an area. It is typical for luxury or specialty goods such as high-end automobiles.