a. The dynamic nature of risk

 The internal and external factors that affect an organisation might keep changing. This means that the risks faced by a company do not remain static but change over time and in different situations.

 In some situations, change in environmental factors are relatively low but, in other situations, risk factors can change a great deal. The latter is sometimes called „turbulent‟ environments.

 The extent of possible exposure to risk due to environmental change can be represented as a scale or continuum between two theoretical extremes that would not be found in practice.

 At one extreme, factors might be static. This is when there is never any change in the external or internal environment of an organisation. This does not mean that there are no risks but, rather, that the risks faced do not change. Clearly, this cannot exist in practice. All organisations will face a changing risk profile.

 At the other extreme, the external or internal environment of an organisation changes constantly with the result that all risks are changing all the time. Such a situation does not exist in reality but situations close to it do exist.

b. Risk-based approach to business

 The term „risk-based approach‟ describes the risk management processes.

 It is an approach to decision-making based on a detailed evaluation of risks and exposures, and policy guidelines on the level of risk that is acceptable (risk appetite).  Risk-based approach takes the view that some risks must be accepted, but risk exposures should be kept within acceptable limits.

 Decisions should therefore be based on a consideration of both expected benefit and the risk.

c. Five types of stakeholders

i. Employees: Employees are exposed to several risks on their jobs. These include the risk of loss of job, and the threat to health or safety in the work that they do. Employment benefits might be threatened. These risks to employees can be affected by risks that face their company.

ii. Investors: Investors are exposed to investment risks. Hence, the board of directors should keep shareholders informed about the significant risks that the company faces, so that investors can assess their own investment risk.

Also, the board of directors should try to ensure that the risk appetite of the company is consistent with the risk appetite of its shareholders (and other stock market investors).

A company should not expose itself to strategic risks that expose the investors to a risk to their investment that the shareholders would consider excessive.

iii. Creditors

These are risks to a company‟s creditors and suppliers arising from:

 The company‟s failure to pay what it owes; and

 The company‟s resolve to stop buying goods and services from them.

A high-risk company is a high credit risk. The liquidity risk and insolvency risk facing a company have an impact on the credit risk for a supplier or lender. When a company asks a bank for a loan, the bank will assess the credit status of the company, and it will make its decision to lend based on the possibility that the company will pay back the loan with interest and on schedule.

iv. Communities and the public

Risks to the public include:

 Communities and the public are exposed to risks from the actions of companies, and the failure by companies to control their risks.

 Health and safety risks from failures by a company to supply goods that meet with health and safety standards.

 Risks to the quality of life from environmental pollution, due to failure by the company to control its environmental/pollution risks.  Risks to a local community also arise from economic risks faced by the company. For instance, if a company is forced to close down a production plant in an area where it is a major employer, the economy of the entire community would be adversely affected.

v. Government

For governments, companies are a source of economic wealth for the country. They create additional economic activities which create extra wealth, and they provide employment and tax revenues for the government.

A risk for government is that major companies could decide to invest in a different country or move their operations from one country to another

vi. Customers

A company might face operational risks from human error or system breakdown in its operations. Errors and delays in providing goods and services have an impact on business customers. Product safety risks for a company are also a risk for customers who use them.

vii. Business partners

A company in a joint venture might try to dominate decision-making in order to reduce the risk that the joint venture will not operate in the way that they want it to.

However, by reducing its exposures to risk in a joint venture, a company will affect the risks for the other joint venture partners.

Risks in partnerships can be controlled for all the partners – to some extent – by incorporating clear terms of reference in the contract agreement between the partners, and by monitoring performance of the partnership.