Question

How does the risk management cycle apply to the following-

A. Small business

B. International firms (50 marks)

Answer 1

A) Risk Management For Small Business:

Risk management Definition:

Risk management is a process in which businesses identify, assess and treat risks that could potentially affect their business operations.

The most common business risk categories are:

• strategic –decisions concerning your business’ objectives
• compliance –the need to comply with laws, regulations, standards and codes of practice
• financial –financial transactions, systems and structure of your business
• operational –your operational and administrative procedures
• environmental –external events that the business has little control over such unfavourable weather or economic conditions
• reputational –the character or goodwill of the business.

• Eight Key points to Remember:

  1. Risks associated with a small business can be characterized as internal and external.
  2. Begin assessing risks by listing events or resources that could impact continued operations and cash flow.
  3. The costs to insure or minimize risks should be weighed against the potential impact of the risk.
  4. A business continuity plan should be part of your overall business plan.
  5. Strategies to avoid risks can include: communication, setting expectations, support systems, staff training,
  insurance, risk assessment, and contingency planning.
  6. Be honest in reviewing your business for risk and know the warning signs.
  7. Seek assistance from others.
  8. Include an exit strategy in your initial business plan and revisit that strategy from time to time.

B) Risk Management for international firms:

The risk profile of international business differs significantly from companies operating in domestic markets. There are different kinds of risks associated with international business. Risks are more difficult to identify, changes can be more rapid than anticipated and the effects are massive. Dependency in international business is inevitable. Companies can hardly implement international business activities just by themselves; they need different kinds of co-operation with other companies that bring additional input to their risk profile. Co-operating companies always share some amount of risks of the other company.