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ACCA Strategic Professional · Strategic Business Leader · Managing, monitoring and mitigating risk

Orrin Pharma discovers that a trusted supplier has been using unsafe disposal methods for chemical waste. Regulators investigate, a news story names Orrin, and customers begin cancelling contracts although Orrin's own products are unaffected. Which analysis best captures the main risk exposure that has crystallised for Orrin?

The main exposure is reputation risk arising from a supply chain failure, with possible secondary compliance and financial effects. Orrin's products are unaffected, but association with the supplier's misconduct damaged stakeholder trust. It is not a simple market, credit or purely insurable hazard risk.

  1. AReputation risk, triggered by a supply chain event outside Orrin's direct operations, with possible knock-on compliance and financial effectsCorrect
  2. BPure market risk, because customer demand has fallen
  3. CInsurable hazard risk only, because the event is an accident
  4. DCredit risk, because the supplier has defaulted on its obligations

Explanation

The loss of customers stems from damage to Orrin's standing caused by a third party's conduct, so reputation risk is central, with possible regulatory and financial consequences. Market risk concerns prices and rates, not this. It is not a simple insurable accident, and the supplier has not defaulted on payment.

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