Question

Outline five risks, five contingencies and five risk management options relating to financial and business performance.

Answer 1

The following are the type of risks involved in a business:

1. Strategic risk: This refers to laid out plans and comprehensive business lay-outs can become obsolete in the market very quickly, therefore it is a risk when company’s strategy becomes less effective.
2. Compliance Risk: It is risk which rotates around various government rules and compliances. A sudden change in regulations can have adverse effect on business proceedings and running.
3. Operational Risk: refers to unexpected failure of day to day operations. Or some events overpowering and going out of control.
4. Financial risk: Having an unorganized AR/AP, loose debt control can adversely affect and is a risk to the business.
5. Reputational Risk: If at any time, the business reputation/goodwill falls in market due to some unexpected / unavoidable circumstances is a risk to business revenue and market equity value.

Contingency is a possible negative happening which may occur in the future such as a natural disaster, deceitful activity or a terrorist attack. In finance, administrators often attempt to identify and plan for any contingencies that they feel may occur with any significant likelihood.

The following are the types of risk management control:

1. Identify and assess risks that impact business strategy.
2. Design a risk response to reduce the downside and take advantage of the upside potential.
3. Align the functions to execute the organisation’s risk response strategy.
4. Develop risk processes to facilitate better co-ordination, communication, and reporting.
5. Design solutions that prevent, balance, or limit risk.