Skip to content

ACCA Strategic Professional · Strategic Business Leader · Identification, assessment and measurement of risk

Calder Retail has a risk of stock-outs with a likelihood judged high and an impact judged low, because each event costs little and customers readily switch products. According to the usual likelihood-impact approach, which response is most appropriate?

A high-likelihood, low-impact risk is best handled by routine, cost-effective controls such as inventory monitoring and reorder procedures. Avoidance, expensive insurance or partnership sharing would cost more than the small loss each event causes, so they are disproportionate responses.

  1. AAvoid the risk by exiting retail
  2. BTransfer it by buying expensive insurance against every stock-out
  3. CManage it through routine controls, such as inventory monitoring and reorder procedures, at a cost proportionate to the impactCorrect
  4. DShare it with a joint venture partner

Explanation

High-likelihood, low-impact risks are typically controlled through routine operational procedures that are cost-effective. Exit, costly insurance or sharing would be disproportionate to the small loss from each event.

Did you get it right without looking?

One question tells you little. A timed set on Identification, assessment and measurement of risk shows your real accuracy, how long you take and where you lose marks.

Practise Identification, assessment and measurement of riskFree diagnostic mock

More Identification, assessment and measurement of risk questions