BSBMGT616 : Develop and Implement Strategic Plans - Organization's Ability - Business Assignment Help

Assignment Task :

Assessment Task 1 Instructions as provided to students

Provide answers to all of the questions below:

1. Give three examples of risks that should be taken into account in developing and implementing strategic plans.

Operational risks are major risks that affect an organization's ability to execute its strategic plan. Financial risks include areas such as financial reporting, valuation, market, liquidity, and credit risks. Compliance risks relate to legal and regulatory compliance.

2. Give two examples of risk management strategies that can be used when developing and implementing strategic plans. 

Four risk management strategies

1. Avoid it.

2. Reduce it.

3. Transfer it.

4. Accept it.

Avoid the Risk

Sometimes, a risk will be so serious that you simply want to eliminate it, for example by avoiding the activity altogether, or using a completely different approach. If a particular type of trading is very risky, you may decide it’s not worth the potential reward, and abandon it.

The advantage of this strategy is that it’s the most effective way of dealing with a risk. By stopping the activity that’s causing the potential problems, you eliminate the chance of incurring losses. But the disadvantage is that you also lose out on any benefits too. Risky activities can be very profitable, or perhaps have other benefits for your company. So this strategy is best used as a last resort, when you’ve tried the other strategies and found that the risk level is still too high.

Reduce the Risk

If you don’t want to abandon the activity altogether, a common approach is to reduce the risk associated with it. Take steps to make the negative outcome less likely to occur, or to minimize its impact when it does occur.

With our earlier case, “Key client XYZ Corp is late paying its invoice”, for example, we could reduce the likelihood by offering an incentive to the client to pay its bills on time. Maybe a 10% discount for early payment, and a penalty for late payment. Dealing with late-paying customers can be tricky, and we covered it more in our tutorial on managing cash flow more efficiently, but these are a couple of options.

Transfer the Risk

We’re all familiar with the concept of insurance from our everyday lives, and the same applies in business. An insurance contract is basically a transfer of risk from one party to another, with a payment in return.

When you own a home, for example, there’s a big risk of losses from fire, theft, and other damage. So you can buy a home insurance policy, and transfer that risk to the insurance company. If anything goes wrong, it’s the insurance company that bears the loss, and in return for that peace of mind, you pay a premium.

When you own a business, you have the option to transfer many of your risks to an insurance company as well. You can insure your properties and vehicles, and also take out various types of liability insurance to protect yourself from lawsuits. We’ll look at insurance in more detail in the next tutorial in the series, but it’s a good option for dealing with risks that have a large potential impact, as long as you can find an affordable policy.

Accept the Risk

As we’ve seen, risk management comes at a price. Avoiding a risk means constricting your company’s activities and missing out on potential benefits. Reducing a risk can involve costly new systems or cumbersome processes and controls. And transferring a risk also has a cost, for example an insurance premium.

So in the case of minor risks, it may be best simply to accept them. There’s no sense investing in a whole new suite of expensive software just to mitigate a risk that wouldn’t have had a very big impact anyway. For the risks that received a low score for impact and likelihood, look for a simple, low-cost solution, and if you can’t find one, it may be worth simply accepting the risk and continuing with business as usual.

The advantage of accepting a risk is pretty clear: there’s no cost, and it frees up resources to focus on more serious risks. The downside is also pretty clear: you have no controls in place. If the impact and likelihood are minor, that may be fine. But make sure you’ve assessed those things correctly, so that you don’t get a nasty surprise.

3. Give an example of a risk management strategy that can be used to manage intellectual property risks inherent in strategic planning. 

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