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

Calder Retail's directors discuss a possible new competitor entering its market. One director says the risk is dangerous because it could cut sales by 30%, though it is unlikely in the next five years. Using the common risk assessment model, which two dimensions is the director combining to judge the risk's significance?

The director is combining probability and impact. The likelihood that the competitor enters is low, but the effect on sales would be large, and risk significance is judged by weighing these two dimensions together, for example on a risk map.

  1. AProbability (likelihood) and impact (consequence)Correct
  2. BControllability and cost of mitigation
  3. CSource and timing of detection
  4. DInherent and residual risk

Explanation

Risk is typically assessed by combining the likelihood of occurrence with the size of its impact. The director cites a large impact (30% sales) and low likelihood. Inherent versus residual compares risk before and after controls, which is not discussed.

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