Skip to content

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

Kestrel Foods plans to rank its risks on a two-by-two grid. A supplier failure is judged to be unlikely to happen but would halt production for months if it did. Under a standard likelihood and impact matrix, how should this risk be classified and treated?

The supplier failure is a low likelihood, high impact risk. Such risks are normally addressed through contingency planning, insurance or alternative suppliers, because although unlikely, the consequences would be severe. Routine controls or simple acceptance would leave the company exposed to a catastrophic disruption.

  1. ALow likelihood, high impact: usually managed by contingency planning or transferring the risk, such as insurance or alternative suppliersCorrect
  2. BHigh likelihood, low impact: usually managed by routine controls and accepted
  3. CLow likelihood, low impact: usually ignored and not monitored at all
  4. DHigh likelihood, high impact: usually avoided by exiting the business

Explanation

The risk has a low chance of occurring but severe consequences. In a likelihood/impact matrix this quadrant is typically handled by contingency plans, sharing or transferring the risk. Treating it as routine ignores the severity of the impact.

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