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CG TEST QUESTIONS

The board of Deen Plc discussed the need for timely risk information and engaged risk consultants to assess potential risks facing the company. The consultants identified six risks, with varying likelihoods and impacts, and emphasized the importance of developing a culture of risk awareness throughout the organization. Rashida's belief that risk assessment is unnecessary was criticized, highlighting the dynamic nature of risks and the need for regular assessments to manage potential threats effectively.

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15 views

CG TEST QUESTIONS

The board of Deen Plc discussed the need for timely risk information and engaged risk consultants to assess potential risks facing the company. The consultants identified six risks, with varying likelihoods and impacts, and emphasized the importance of developing a culture of risk awareness throughout the organization. Rashida's belief that risk assessment is unnecessary was criticized, highlighting the dynamic nature of risks and the need for regular assessments to manage potential threats effectively.

Uploaded by

Idris
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Test question

Question One
The board of Deen Plc discussed its need for timely risk
information. The consensus of the meeting was that
risk consultants should be engaged to review the risks
facing the company. One director, Rashida, said that
she felt that this would be a waste of money as the
company needed to concentrate its resources on
improving organizational efficiency rather than on
gathering risk information. She said that many risks
‘didn’t change much’ and ‘hardly ever materialised’
and so can mostly be ignored. The rest of the board,
however, believed that a number of risks had recently
emerged whilst others had become less important and
so the board wanted a current assessment as it
believed previous assessments might now be outdated
The team of risk consultants completed the risk audit.
They identified and assessed six potential risks (A, B, C,
D, E and F) and the following information was
discussed when the findings were presented to the
DEEN board: Risk A was assessed as unlikely and low
impact whilst Risk B was assessed as highly likely to
occur and with a high impact. The activities giving rise
to both A and B, however, are seen as marginal in that
whilst the activities do have value and are capable of
making good returns, neither is strategically vital. Risk
C was assessed as low probability but with a high
potential impact and also arises from an activity that
must not be discontinued although alternative
arrangements for bearing the risks are
Possible. The activity giving rise to Risk C was recently
introduced by DEEN as a result of a new product
launch.
Risk D was assessed as highly likely but with a low
potential impact, and arose as a result of a recent
change in legislation. It cannot be insured against nor
can it be outsourced. It is Strategically important that
the company continues to engage in the activity that
gives rise to Risk D although not necessarily at the
same leve! As is currently the case.
In addition, Risks E and F were identified. Risk E was an
environmental risk and Risk F was classed as a
reputation risk. The Risk consultants said that risks E
and F could be related risks. In the formal feedback to
the board of Deen Plc, the consultants said that the
company had to develop a culture of risk awareness
and that this should permeate all levels of the
company Required: (a) Criticise Rashida’s beliefs about
the need for risk assessment Explain why risks are
dynamic and therefore need to be assessed regularly.
(b) Using an appropriate framework, select and explain
the appropriate strategy for managing each risk (A, B, C
and D). Justify your selection in each case. (c) Explain
what ‘related risks’ are and describe how Risks E and F
might be positively correlated (d) The risk consultants
reported that they needed to cultivate a culture of risk
awareness
And that this should permeate all levels of the
company. Required Explain and assess this advice.

Suggested answer:
(a) Rashida’s beliefs about the need for risk
assessment have been criticised due to her
lack of understanding of the dynamics of risk
management. Risk assessment is necessary
because risks are constantly changing and it is
important to stay up to date with the latest
changes in the environment. This helps
organizations stay ahead of potential threats
and prepare for them in advance.
Additionally, risk assessment enables
organizations to weigh and manage the
likelihood and impact of various risks, which is
essential for effective risk management.

(b) A suitable framework for the appropriate


strategies to manage Risks A, B, C and D could
be the Risk Response Planning Matrix.
 Risk A could be managed by the avoidance
strategy, which involves attempting to avoid
any possibility of the risk occurring.
 Risk B could be managed by the reduction
strategy, which involves implementing
measures to reduce the likelihood or the
impact of the risk.
 Risk C could be managed by the transfer
strategy, where the risk is transferred to an
external entity. And
 Risk D could be managed by the acceptance
strategy, which involves accepting the
likelihood or impact of the risk.
(.c). Related risks are risks which share
common characteristics and can cause
similar impacts on an organization if they
manifest.

 Risks E and F could be positively correlated,


as they are both associated with the
environment.

 Risk E could involve environmental pollution,


while Risk F could involve reputational
damage due to the organization’s conduct in
its environment. Both risks could have a
negative impact on the organization and
should be managed accordingly.

(d). The advice provided to Deen Plc to cultivate a


culture of risk awareness and that this should
permeate all levels of the company is sound and
should be followed. Risk awareness refers to the
understanding of potential risks and their impact, so
that the organization can develop certain protocols
and standards to implement suitable risk management
strategies. By raising the risk awareness of all levels
within the organization, the company can make sure
that effective risk management plans are in place and
that everyone is informed of potential risks.

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