Question

All the activities of a well-managed organization should contribute to achieving that organization's goals. The more important a specific goal is to an organization's owners and managers, the more the organization's resources should be focused on that goal. These resources include the organization's risk management efforts. Therefore, these efforts should give primary attention to protecting the resources and activities that contribute to achieving the organization's most critical goals. Analyze these goals and group them into any five (5) categories for risk management purposes.

Answer 1

Business enterprises face risks due to a dynamic business environment. The risks can cause losses or even bankruptcy. That is why all the firms must have a strict, and active risk management departments to mitigate and anticipate the future risks. There are five categories of risks: strategic, compliance, financial, operational, and reputations. It is evident that all the enterprises need a well-thought plan to succeed, but at times it is also possible that the environment shows changes, and the plans do not work. It is where the strategic risk comes into play. For instance: The companies have decided their sales goal for the year 2020-21, but the entire world is on a standstill because of coronavirus, and the companies cannot achieve the set goals. Compliance risks are when the business enterprises fail to comply with the rules and the laws. For instance: The authorities allow a particular amount of emission from each company, but many companies tend to violate the rules for their benefits. Operational risks come into play when the company cannot complete the day-to-day operations efficiently. For example, The change in the legal procedures can affect the day to day operations. The laws mandate the sustainable measures, and it will affect the daily operations. The company can also face a financial risk when the money flows in and out of business. For instance: The supplier might charge a higher price than the market price. It will lead to losses in the firm, as the extreme risk is the reputation risk. Reputations risk invoke any lawsuit or defamation by any other firm in the industry. For instance: The company might defame the competitor for personal gains. Hence, it is unethical and involves risks.