CMI 518 Assignment Example

Business processes, structures, knowledge, and outcomes can be improved when risks are identified and managed properly. While risk doesn’t have a single definition, it can be described as the likelihood of an event happening and its potential consequences. It may also refer to the lack of knowledge or expertise, or in the context of project management, as the “standard deviation of free cash flows.” Risk management has various aspects, including social, operational, technical, and management factors, and it can apply across all areas of a business, including its customers, markets, and suppliers. It can also cover intangible elements like reputation, brand, and image.

CMI 518 Managing Risk has been designed to help learners understand the scope and purpose of business risk management. This includes evaluating different types of business risks, the governance structures and strategies for managing them, and how to effectively implement risk management practices within organisations.

Assessment Questions

Learning Outcome 1: Understand the scope of business risk management

AC 1.1 Evaluate business risks in relation to the organisation, its customers and suppliers.

Every business faces risks that could impact its financial performance. These risks can arise from various sources, including within the organisation itself, from customers, or from suppliers. It’s important for businesses to assess these risks and create strategies to minimise their potential impact.

Organisational risks are those that could prevent the business from achieving its goals. These include financial risks, operational challenges, and reputational damage.

Customer risks are risks that could affect customer satisfaction or lead to losing customers, such as issues with product quality, delivery problems, or pricing concerns.

Supplier risks refer to factors that could affect a supplier’s ability to deliver goods or services to the business. These include quality problems, delays in delivery, or financial instability of the supplier.

AC 1.2 Analyse the governance of risk within organisations

Understanding how risk is governed within an organisation is also crucial. Risk management is usually overseen by a board of directors or a senior executive team. This team is responsible for defining the organisation’s risk appetite and ensuring that risks are managed properly.

Risk governance involves creating policies and procedures, identifying and assessing risks, developing and implementing control measures, and regularly monitoring and reviewing risks.

By understanding how risk is managed, businesses can take the necessary steps to protect themselves from potential threats.

AC 1.3 Examine categories of risk used within different organisational settings.

Businesses need to be aware of a variety of risks, including financial, operational, reputational, legal, and compliance risks.

Financial risks affect the financial stability of the organisation, such as market risk, credit risk, and liquidity risk.

Operational risks can impact the organisation’s ability to function smoothly, including risks related to the supply chain, IT systems, and human resources.

Reputational risks can damage the organisation’s public image, such as risks related to customer satisfaction, media coverage, or product safety.

Legal risks could lead to legal action against the organisation, including issues with compliance, product liability, or employment laws.

Compliance risks can result in fines or penalties, including risks related to environmental regulations, health and safety laws, or anti-corruption measures.

AC 1.4 Analyse organisational methods for managing and quantifying risk

Businesses can use various methods to manage and measure risk, including risk registers, risk matrices, and Monte Carlo simulations.

Risk registers are used to track and manage risks. They usually list the risks, their likelihood of occurring, and their potential impact.

Risk matrices provide a visual representation of risks, with one axis showing the probability of a risk occurring and the other axis showing its impact.

Monte Carlo simulations help quantify risks by running computer simulations to generate a range of possible outcomes.

Learning Outcome 2: Understand the process for managing business risk

AC 2.1 Analyse the processes for identifying, assessing and ranking business risk

Business risk can take many forms, from financial instability and natural disasters to cyberattacks. Given the wide range of potential risks, it is important for businesses to have a process to identify, assess, and prioritise them.

The first step in managing business risk is identifying potential risks. This can be done using methods such as interviews, surveys, and focus groups.

Once risks are identified, the next step is to assess them. This means understanding how likely each risk is to happen and the potential impact it could have on the organisation.

After assessing the risks, they need to be ranked. This helps prioritise which risks should be addressed first and which ones require the most attention.

AC 2.2 Analyse the process for managing a business risk

After risks have been identified, assessed, and ranked, they must be managed. This involves creating strategies to reduce or eliminate the risks.

There are several strategies businesses can use to manage risk, including insurance, hedging, and diversification.

Insurance allows businesses to transfer risk to another party. The insurer agrees to cover any losses the business may experience.

Hedging helps mitigate risk by taking offsetting positions in different assets. For example, a company may hedge against currency risk by buying and selling various currencies.

Diversification involves spreading risk across multiple investments. This reduces the impact if one investment fails.

AC 2.3 Examine approaches for mitigating a business risk.

Every business faces risks that could threaten its success or even its survival. Some risks are part of the business itself, while others may arise due to current market conditions or external factors. Therefore, it is crucial for businesses to regularly identify and assess their risks. By understanding the risks they face, businesses can create strategies to reduce or manage them.

There are several ways businesses can reduce risk. One common method is to spread risk across multiple parties through contracts or insurance policies. Another approach is to invest in measures that reduce risk, such as security systems or improving processes. Businesses can also reduce risk by diversifying their operations or product lines, which helps to minimise the impact of any single risk.

Learning Outcome 2: Understand the process for managing business risk

AC 2.4 Analyse methods for implementing business risk management

There are several methods businesses can use to implement risk management.

One common approach is to create policies and procedures, providing a clear framework for employees to follow when making decisions. Another method is to set up a risk management committee, which is responsible for identifying and assessing risks. Additionally, businesses can use training and education to help employees understand risk management and how to apply it effectively.

AC 2.5 Assess methods for reporting identified risks to stakeholders.

Risk management is crucial for any business or organisation, and effective risk management relies on accurate and timely risk reporting.

There are different methods to report risks to stakeholders, and the best approach depends on the specific risks and the preferences of the stakeholders.

One common method is a risk register, which serves as a central place to store all risk information. It helps track and monitor risks over time and can generate reports for stakeholders. Other methods of risk reporting include using charts and graphs, sending periodic newsletters or emails, or holding regular meetings to discuss risks.