CIMA P3 Syllabus A. Enterprise risk - Risks in General - Notes ^{1 / 3}

Upside risk

This is where things work out better than expected :)

Downside risks

The risk something goes wrong - so this needs minimising - though probably not totally as the cost would outweigh the risk. Also known as 'pure risk'.

Speculative risks

Where there can be both good and bad outcomes. Also known as ‘two-way risk’.

Risk and Uncertainty

Risk Looks at POSSIBLE outcomes, and the chances of them happening can be qauntified. Just the ACTUAL outcome is unknown

Uncertainty Here you do not know the possible outcomes / chances. Uncertainty cannot be quantified

This is why many insurance companies don't include war damage etc because the impact is not quantifiable

Benefits of Risk management?

1. More predictable cashflows

2. Well-running systems

3. Less chance of bankruptcy

4. Shareholders more confident