Risk & Uncertainty (AQA A Level Business): Flashcards
Exam code: 7132
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Define risk.
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Cards in this collection (41)
Define risk.
Risk describes a situation where the likelihood of a particular outcome can be estimated, based on data or past experience.
Define uncertainty.
Uncertainty describes a situation where the outcome, or even its probability, cannot be reliably predicted at all.
How does planning for risk stop a business being caught off guard?
Anticipating problems allows a business to prepare a response in advance, rather than reacting under pressure once a crisis has begun.
How can planning tools limit the financial impact of negative events?
Tools such as insurance and contingency funds can significantly reduce the losses a business suffers if a risk materialises.
True or False?
Assessing and planning for risk benefits all of a business's stakeholders.
True.
Employees, customers, suppliers and shareholders all benefit from a business that is resilient to shocks, so risk planning protects all stakeholders.
How does assessing risk support better strategic decision-making?
Understanding the level of risk involved helps managers judge which opportunities are genuinely worth pursuing.
Lenders and investors are more likely to support a business that has properly assessed risk, so planning builds investor ________.
Lenders and investors are more likely to support a business that has properly assessed risk, so planning builds investor confidence.
Define financial risk.
Financial risk is the risk of losses relating to a business's finances, such as cash flow problems, rising borrowing costs or falling demand.
Define strategic risk.
Strategic risk is the risk that a major strategic decision, such as a new product launch or market entry, fails to deliver the results expected.
The risk of disruption to a business's day-to-day production or service delivery, for example through equipment failure, is called _________ risk.
The risk of disruption to a business's day-to-day production or service delivery, for example through equipment failure, is called operational risk.
Define compliance risk.
Compliance risk is the risk of failing to meet legal, regulatory or industry standards, potentially resulting in fines, legal action or a loss of licence to operate.
True or False?
Reputational risk only arises when a business breaks the law.
False.
Reputational risk is the risk of damage to a business's public image or brand, which can occur even without a direct financial or legal failure.
Define cybersecurity risk.
Cybersecurity risk is the risk of a business's data or systems being compromised through hacking, ransomware or other cyberattacks.
Define market research.
Market research is the process of gathering, analysing and interpreting information about a market to reduce the risk of making a poorly informed decision.
True or False?
A positive market research result guarantees that a product will succeed.
False.
A positive result does not guarantee real-world success. Research can create a false sense of reduced risk, and findings can quickly become outdated.
Define sales forecasting.
Sales forecasting is the process of predicting future sales using historical data and trends.
How does sales forecasting help a business manage financial risk?
It helps match inventory, staffing and cash flow to realistic expected demand. This reduces the risk of overtrading or cash flow strain.
Define contingency planning.
Contingency planning is the process of predicting risky or unwanted events, then developing a process for how the business will respond if any such event occurs.
Define crisis management.
Crisis management refers to the immediate handling of a disruptive and unexpected event.
During a crisis, radical solutions such as autocratic leadership and _________ decision-making could ensure business continuity.
During a crisis, radical solutions such as autocratic leadership and centralised decision-making could ensure business continuity.
True or False?
Contingency planning and crisis management can improve a business's resilience to disruption.
True.
They cannot eliminate the risk of disruption, but they can improve resilience, reduce negative impacts and increase stakeholder confidence.
Define succession planning.
Succession planning is the process of identifying and developing internal staff to fill key leadership positions in future.
How can succession planning create a new risk of internal conflict?
Overlooked candidates may become demotivated, which increases the risk of employee turnover elsewhere in the business.
Diversification involves a business spreading its products, suppliers or markets to reduce ______ on any single one and lower overall risk.
Diversification involves a business spreading its products, suppliers or markets to reduce reliance on any single one and lower overall risk.
Define insurance.
Insurance is a financial arrangement in which a business pays regular premiums in exchange for compensation should a specified risk occur.
True or False?
Insurance reduces the likelihood of a risk event happening.
False.
Insurance does not reduce the likelihood of the event. It transfers the financial consequence to a third party in exchange for a predictable, known cost.
Why can cybersecurity measures never reduce cyber risk to zero?
New threats constantly emerge, so ongoing investment is needed just to maintain the same level of protection.
Define scenario planning.
Scenario planning is a strategic planning method where a business develops several plausible future scenarios (best case, worst case and most likely case) and considers in advance how it would respond to each.
Why can a business not forecast or insure against genuine uncertainty?
With genuine uncertainty, an outcome and its probability cannot be reliably estimated, unlike a calculable risk.
How does scenario planning improve the speed of response when an event occurs?
Some thinking and preparation has already been done in advance, so the business can act faster.
True or False?
Scenario planning prepares a business for every possible outcome.
False.
It can never cover every possible outcome, since some events are unimaginable in advance. It may create false confidence that the business is prepared.
Define agile business.
An agile business is one that can respond quickly and flexibly to unexpected change, adapting its strategy, structure or processes rapidly rather than being slow and rigid.
How does agility manage uncertainty differently from scenario planning?
Rather than trying to predict what might happen, agility focuses on building the capability to respond fast to whatever actually happens.
How does a flat organisational structure help a business become more agile?
Reducing management layers gives employees more direct access to decision-makers. This speeds up decision-making.
Define empowerment.
Empowerment involves giving employees the authority to make decisions within their own area, without needing constant senior approval.
Leaders who inspire staff towards a shared vision, rather than simply directing and controlling them, demonstrate ______________ leadership.
Leaders who inspire staff towards a shared vision, rather than simply directing and controlling them, demonstrate transformational leadership.
How do cross-functional teams help a business become more agile?
Combining staff from different departments on a specific project improves communication. It produces faster, more informed decisions than departments working in isolation.
True or False?
Agile businesses treat mistakes as a source of learning.
True.
Agile businesses have a tolerance for experimentation and failure, so mistakes become a chance to learn and improve.
How can developing an agile business improve staff motivation?
Greater autonomy and trust can increase job satisfaction, a key non-financial motivator.
Why can agile working create inconsistency?
Decentralised decision-making across many empowered teams can lead to inconsistent standards or customers' brand experiences.
True or False?
Full agility is suitable for every type of business.
False.
Highly regulated industries, such as pharmaceuticals or aviation safety, often require tighter centralised control.
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