The notes above provide an incredibly detailed summary of the Business Function section of the Business Studies syllabus of the IEB curriculum. The notes above have been used to complete the grade 11 year with a 91% on the final exam.
Risk Management Function
Risk Management
Risk management identifies, assess and controls threats and develops strategies to deal
with risks.
Possible risks include:
○ Damage due to fire, floods, theft etc.
○ Loss of customers due to changing trends, competition etc.
○ Unforeseen circumstances COVID-19.
A business needs to ensure they are well prepared to confront and manage risks in a
cost-effective way.
Risk Management Concepts
Identification of Risk
The owner must visualize what the future may hold for the business in order to identify
risks. You can use techniques like the decision tree technique.
Description of Risk
Preventable risks arise within the business. These risks are controllable and can be
avoided by implementing structures in the business. Eg: Bribery can tarnish the
reputation of the business.
Strategy risks are when a business takes a risk by implementing a strategy in the hopes
of increasing their market share. Eg: Changing a good recipe in order to make it better.
External risks the business has no control over. Can be caused by political decisions,
economic downturns and changes in trends. These risks need preventative measures so
they do not destroy the business.
Risk estimation
,This is when the management of a business looks at the probability of certain risks
occurring and the impact it would have on the business.
Risk Profile
A risk profile is drawn up by management and is a summary that lists all estimates of
what can go wrong, as well as a strategy, new product or a new program to lessen it.
Risk Culture
Has to do with the culture of the business, the business cannot control. Employees will
have a set of shared behaviours, values and goals based on their experience together.
Types of Risks
Risks can cause a serious loss of profits or even bankruptcy. Risk management
departments are created to ensure that they are lessened or eliminated.
The main types of risks include:
➔ Strategic Risk: The risk that a business’ strategy becomes less effective and the
business struggles to reach its goals as a result. Eg technological changes, new
competitors.
➔ Compliance Risk: The Failing to comply with existing regulations or laws as a
business expands. Eg BBBEE or Consumer Protection act.
➔ Operational Risk: Refers to an unexpected failure in a business’ day-to-day
operations. Eg technical failure or people or processes.
➔ Financial Risks: The money flowing in and out of the business and the possibility
of a sudden financial loss. Eg, if revenue comes from a single large client and
they delay payment or is unable to pay your business is in a financial risk. Debt
increases risk
➔ Reputational Risk: If the Business’ reputation is damaged, it will create a loss of
revenue because customers will be wary of doing business with them. Eg The
Body Shop’s animal testing. (PR)
, Risk Management Process
1. Risk identification: Identify and define potential risks that could negatively impact
the business.
2. Risk Analysis: Gain insight into the possibility of the risk occurring.
3. Risk assessment and evaluation: Further evaluation to determine if the risk is
likely and if it is acceptable to the company to take on the risk in return of the
potential reward.
4. Risk mitigation: Asses the highest ranking risks and developes plans to lessen
them.
5. Risk monitoring: Follow up and review of the risk process. Track new and existing
risks.
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