Question 2.2 Solution

EACG2708
Question 2.2 Suggested solution:

# Explanation Marks
(a) How can a business identify potential risks?
1. A business can identify potential risks through different techniques and
sources, for example: 2
• Brainstorming, (0.5)
• Checklists, (0.5)
• SWOT analysis, and (0.5)
• Scenario planning (0.5)
• Porter’s five forces model (0.5)
2. The organisation can involve stakeholders from different levels and 0.5
departments to ensure that all potential risks are identified.
3. Any other relevant answer (0.5) 0.5
Available Marks 3
Maximum Marks 2
(b) What factors should the business consider when evaluating risks?
1. A business should consider factors such as the likelihood of the risk
2
occurring (1) and the potential impact on the business objectives (1).
2. A business should consider the cost vs benefit of mitigating the risk. 1
3. The risk appetite (1) and risk tolerance (1) levels should also be
2
considered to determine how much risk the business will accept.
Total Marks 5
(c) What are some strategies a business can use to respond to
identified risks? Provide the board with four (4) strategies and a brief
description of each strategy identified.
1. Tolerance or Acceptance of Risk (1)
Risk acceptance involves acknowledging the risk and being prepared to 2
deal with the consequences if the risk occurs. (1)
2. Transferring risk to a third party (1)
Risk transfer involves transferring the risk to another party, such as an 2
insurance company. (1)
3. Mitigation (treatment or reduction) of identified risks (1)
2
Risk mitigation involves reducing the likelihood or impact of the risk. (1)
4. Avoidance or termination of activity that creates the risk (1)
Risk avoidance involves eliminating the risk by not engaging in the activity 2
that creates the risk. (1)
5. Exploitation of the opportunity created by risk (1)
Risk exploitation involves finding a business opportunity (if any) in the 2
circumstances created by the risk. (1)
1
EACG2708
6. Risk diversification (1) Risk diversification involves limiting a business’s 1

exposure to risk by diversifying the activities creating the risk. (1)
Available Marks 12
Maximum Marks 8
(d) How can a business manage risks effectively?
1. A business can manage risks effectively by: 3
• Establishing a risk management framework, (1)
• Implementing risk management policies and procedures, (1)
• Regularly monitoring and reviewing risks (1)
2. The business can also allocate resources to prioritise and address high-
priority risks (1), involve stakeholders from different levels and 3
departments in the risk management process (1), and continuously
improve the risk management process based on lessons learned (1).
Available Marks 6
Maximum Marks 4
(e) What are some examples (at least three (3) examples) of risks that
Baxter (Pty) Ltd may face in its daily operations?
1. Financial risk: (1) Baxter manufactures expensive furniture. Due to the
current economic climate (e.g., high interest rates), sales might fall 2
significantly, and Baxter might not have enough money to pay its debts,
employees, and other expenses. (1)
2. Supply chain disruptions (Operational Risk): (1) Due the scarcity of
the rare wood used in production, there might be supply chain disruptions 2
due to a natural disaster (floods or fire) destroying the wood. (1)
3. Strikes / labour disputes (Operational Risk): (1) As the production
process is very manual-labour intensive, there could be wage disputes 2
which will result in strikes bring the production process to a halt. (1)
4. Regulatory risk: (1) As the production process is very manual-labour
intensive, Baxter could possible not adhere to relevant labour laws 2
(minimum wages or employment or illegal immigrants) which could result
in penalties. (1)
5. Poor product quality (Operational Risk) / Reputation risk: (1) There
is a risk that the expensive furniture is not of a high quality due to poor 2
training or oversight of the production process. This could lead to
customers returning their products (loss of sales) and/or a bad reputation
for Baxter. (1)
6. Any other valid risk (1) with a valid explanation (1).
Available Marks 10
Maximum Marks 6

Question 2.2 Solution

Uploaded by

Copyright:

Available Formats

Question 2.2 Solution

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Question 2.2 Solution

Uploaded by

Copyright:

Available Formats

EACG2708

Question 2.2 Suggested solution:

6. Risk diversification (1) Risk diversification involves limiting a business’s 1

You might also like