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

Orlan Mining plc faces a political risk in a country where it operates: nationalisation of its mine. Likelihood is judged low, but impact would be loss of its main asset. Management also notes that risk velocity is high, since events could unfold within days with little warning. Which approach best reflects a sound assessment?

Orlan should consider speed of onset together with likelihood and impact, giving priority to early-warning indicators and pre-agreed response plans. Fast-onset, high-impact risks leave little time to react, and low likelihood does not reduce the impact rating or justify automatic acceptance.

  1. ARely only on annual likelihood-impact scores, because speed of onset is irrelevant to assessment
  2. BConsider onset speed alongside likelihood and impact, so that early-warning indicators and pre-agreed response plans are prioritised for this riskCorrect
  3. CReduce the impact rating because the likelihood is low
  4. DTreat the risk as acceptable because the company cannot control government actions

Explanation

Velocity or proximity affects how much time exists to respond. A fast-onset, high-impact risk needs monitoring indicators and prepared responses. Lowering impact because of low likelihood confuses the two dimensions, and inability to control does not justify acceptance without mitigation such as insurance or structuring.

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