CIMA Paper P2

Advanced Management Accounting

Ian Kusano and Nathi Thela
 Chapter 13
Risk Management

1
 Risk

What is risk ?
• ...the chance that future events or results may not be as
expected

Why incur risk ?

• To gain competitive advantage
• To increase financial return

2
 CIMA’s Risk Management Cycle
Establish risk
management group
Identify risk areas Business strategy
and set goals

Understand and
Review and refine
assess scale of
process
risk
Information for
decision making
Implementation
Develop risk
and monitoring of
response strategy
controls
Implement strategy
and allocate
responsibilities

3
 Risk Identification

4
 Risk Mapping

Low Impact/Consequences High

High

Probability/
Likelihood

Low

5
 Risk Treatment Methods

• Avoid risk
• Transfer risk
• Pool risks
• Diversification
• Risk reduction
• Hedging risks
• Risk sharing

6
 Risk Mapping : TARA framework

Low Impact/Consequences High

High

Control Mitigate and

control
Probability/
Likelihood
Transfer/
Accept
share

Low