Topic: Risk Management and Corporate Strategy

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CSME – Nov 2023 – L2 – Q7 – Risk Management and Corporate Strategy

This question discusses the application of risk management frameworks in an IT start-up, focusing on Enterprise Risk Management (ERM), ISO31000, and the ALARP strategy.

Question

An Information Technology start-up located in Lagos is planning to establish a robust risk management system that covers all its activities. You have been engaged as a consultant to advise it on how an effective risk management framework can be incorporated into the company’s processes to ensure that all risks that could impair the achievement of organisational goals are effectively managed.

Required:
a. Suggest to your client a risk management framework that the management can adopt using the following:
i. Enterprise Risk Management (ERM) (6 Marks)
ii. ISO31000 frameworks (3 Marks)

b. Draft an enterprise risk management strategy for the firm, using ALARP. (5 Marks)

Answer

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Tags: ALARP, Enterprise Risk Management, ISO31000, IT Start-Up, Risk Strategy
Level: Level 2

Topic: Risk Management and Corporate Strategy

CSME – Nov 2023 – L2 – Q6 – Risk Management and Corporate Strategy

This question identifies types of risk in a volatile business environment, using the Turnbull Report.

Question

Today’s business environment is often described by many experts as Volatile, Uncertain, Complex, and Ambiguous (VUCA). Some of the driving forces of the VUCA environment include COVID-19 pandemic, the war in Europe, global warming, and a rapidly changing technological environment.

The impact of the VUCA environment on the global economy includes inflation, dwindling consumers’ purchasing power, rising energy costs, among others, leading to an increase in a sense of turbulence, danger, and unpredictability. With the volatility in the business environment also comes frequent changes in laws and regulations affecting businesses, a factor that adds instability to an already unstable business environment.

You have been asked by a start-up company in the consumer goods retailing business to provide advice on risk management as it concerns the global economy. The company is planning to launch an online retail store with a focus on the global consumer goods market.

Required:
Using the Turnbull Report and drawing from the given scenario, identify and explain to your client the types of risk that are inherent in the VUCA business environment. (15 Marks)

Answer

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Tags: Global Economy, Risk Management, Strategic Risks, Turnbull Report, VUCA
Level: Level 2

Topic: Risk Management and Corporate Strategy

CSME – Nov 2023 – L2 – Q3 – Risk Management and Corporate Strategy

Clarify key concepts in risk management for an investor considering a new business venture.

Question

Professor Akinlabi has been teaching physics at a frontline public university in Nigeria for 30 years. He made quite some money from research grants and has over the years saved about 75 million naira, which he has been keeping in a fixed deposit facility. He complained to his friend, Dr. Albert, who is a professional accountant and expert in risk management, about the low interest rate on fixed deposits and how the high inflation rate in the country is fast eroding the real value of his savings. He is thinking of investing his savings in a poultry farm, but he is quite averse to risks.

Having tried to get some information on the diverse dimensions and dynamics of risks involved in business, he asked Dr. Albert to offer some clarifications. As Dr. Albert, you are required to offer clarifications on the following:

a. Exposure to risk and the nature of qualitative risks. (5 Marks)

b. Residual risk. (3 Marks)

c. The dynamic nature of risk assessment. (7 Marks)

d. Risk-based approach to business. (5 Marks)

Answer

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Tags: Dynamic risk assessment, Qualitative risks, Residual Risk, Risk Exposure, Risk-Based Approach
Level: Level 2

Topic: Risk Management and Corporate Strategy

MGE – Nov 2014 – L2 – Q7 – Risk Management and Corporate Strategy

Assessing risk in importing machinery and comparing finance vs. operating lease strategies for construction equipment.

Question

EXPEE CONSTRUCTION PLC.

Expee Construction Plc. has been awarded a contract to construct a 50-kilometer feeder road from Abekoko to Idi Magoro by Adatan State. Unfortunately, the company’s earth-moving machine (bulldozer) suffered a major mechanical fault, making it impossible to mobilize to the site for execution of the contract.

Similar machines are not available for sale in the open market. Management is therefore considering the option of either importing a new machine from Japan or leasing one from Odogunyan Machines Limited located in Eko-Akete. The lease may be a finance or operating lease; either option would release the machine to the lessee for immediate use. Management’s decision on this choice is dependent on its willingness to either retain or transfer the risks involved in the usage of the machine.

Required:

a. Evaluate the risk exposure of the company in adopting the import option.
(5 Marks)

b. Identify and formulate strategies that might be used by the company in managing:

i. The finance lease option
(5 Marks)

ii. The operating lease option
(5 Marks)

Answer

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Tags: Equipment Acquisition, Finance lease, Import Options, Operating Lease, Risk Exposure
Level: Level 2

Topic: Risk Management and Corporate Strategy

CSME – May 2021 – L2 – Q5c – Risk Management and Corporate Strategy

Relating 'Impact and Likelihood' to 'Objective and Subjective' risk perception using a table.

Question

Risk Assessment is a very important activity in an organisation. With the use of a table, relate ‘Impact and Likelihood’ to ‘Objective and Subjective’ risk perception.

Answer

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Tags: Impact, Likelihood, Risk Management, Risk Perception
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2021

CSME – May 2021 – L2 – Q5b – Risk Management and Corporate Strategy

Explanation of the ALARP principle with the aid of a diagram.

Question

With the aid of a diagram, explain the concept of “As Low as Reasonably Practicable” (ALARP) principle. (5 Marks)

Answer

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Tags: ALARP Principle, Risk Evaluation, Risk Management, Safety Standards
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2021

CSME – May 2021 – L2 – Q2 – Risk Management and Corporate Strategy

Examination of a risk manager’s role, specific risks managed, and purposes of risk monitoring.

Question

“A risk manager is not a line manager and is not directly responsible for risk management but might help with the management of specific risks.”

Required:

a.
i. Review the statement above within the context of the role of a risk manager. (7 Marks)
ii. Evaluate THREE specific risks that can be managed. (3 Marks)

b. Discuss the purposes of risk monitoring. (10 Marks)

Answer

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Tags: Evaluation, Risk Management, Risk Monitoring, Role of Risk Manager, Specific Risks
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2021

CSME – May 2017 – L2 – SC – Q5 – Risk Management and Corporate Strategy

Show how organizations can address risk management challenges using ISO 31000.

Question

a. Using the ISO 31000 framework, show what an organization might do to address risk management challenges. (9 Marks)

b. Explain THREE main elements of risk management contained in the ISO 31000 framework. (6 Marks)

Answer

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Tags: ISO 31000, Organizational Risk, Risk Control, Risk Management, Risk Management Framework
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2017

CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy

Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.

Question

Mallam Danladi is a civil servant who has won a sum of one hundred million Naira in a lottery. Being a very conservative person who is averse to risks, Mallam Danladi is contemplating putting the money in a fixed deposit account at an interest rate of 14% per annum or into treasury bills at an interest rate of 18.5% per annum. These two options are considered to be virtually risk-free. Mr. Madoff, a risk consultant, advised him to invest in the production of shea butter, coconut oil, and black soap, with a promise of 52% profit per annum. In an attempt to convince Mallam Danladi to invest in the production of these items, Mr. Madoff tried to educate him on the nature of risks and how to effectively monitor and control them in ways that will ensure that business remains highly profitable.

Required:

a. Explain briefly the nature of risk in business to Mallam Danladi. (2½ Marks)

b. Discuss FOUR distinct means of controlling business risk. (10 Marks)

c. Explain briefly the purpose of monitoring risks in business. (3 Marks)

d. Discuss THREE ways of monitoring risks in business. (4½ Marks)

Answer

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Tags: Business risk, Financial Decision-Making, Fixed Deposit, Risk Control, Risk Monitoring, Treasury bills
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2017

CSME – May 2023 – L1 – SB – Q7 – Risk Management and Corporate Strategy

Analysis of enterprise and operational risks for Gbam Telecoms in launching 5G services.

Question

Gbam Telecoms Plc, a leading mobile phone and internet communications company, is planning to roll out its 5th Generation (5G) spectrum. As a new product, the 5G spectrum promises customers high-speed internet with immense possibilities in computing, big data management, robotics, and other numerous benefits. While a section of the populace believes that the roll-out is a welcome development, others express reservations about the 5G technology. Within Gbam Telecoms Plc, some employees believe that the erratic nature of the country’s power supply could damage the 5G transponders. Also, the high cost of diesel would increase the company’s operating costs, thus making the product largely unaffordable to prospective consumers. There are also security threats to the company’s facilities due to heightened insecurity in the country. The umbrella trade union for the company’s employees is also agitating for a pay rise and hazard allowance should the company go ahead with the 5G roll-out. Some experts believe that the market for 5G spectrum in the country today is negligible because most telecommunication and internet devices used by consumers in the market are not 5G-compliant. There are also reports that the competitors of Gbam Telecoms Plc are studying how the market will respond to Gbam Telecoms’ 5G spectrum before deciding to enter the market. In addition, a study carried out in Europe concluded that 5G spectrum may be hazardous to the health of people living close to 5G transponders. There is also news about the development of new and better technologies called 6G and 7G, which may make 5G obsolete within a short period of time.

Required:

(a) Advise the management of Gbam Telecoms Plc on the enterprise and operational risks that could be associated with the roll-out of 5G spectrum using information contained in the given scenario. (11 Marks)
(b) Suggest to Gbam Telecoms Plc the key elements that should be contained in the company’s Risk Management System. (4 Marks)

Answer

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Tags: 5G Technology, Enterprise Risks, Operational Risks, Risk Management, Strategic Risks
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2023

CSME – May 2023 – L1 – SA – Q2 – Risk Management and Corporate Strategy

Exploring risk management through identification, ranking, and stakeholder impacts.

Question

Every business venture has some measure of risk exposure that must be identified, measured, and adequately prepared for. Indeed, each business entity should have in place a good risk management strategy.

As a risk manager, clarify the following in ways that will be comprehensible to a greenhorn in business:

(a) Risk identification. (5 Marks)

(b) Importance of ranking risks. (3 Marks)

(c) Examine the impact of risks on categories of stakeholders. (12 Marks)

Answer

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Tags: Business Strategy, Operational Risks, Risk Identification, Risk Ranking, Stakeholder Impact
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2023

CSME – Nov 2015 – L2 – Q4 – Risk Management and Corporate Strategy

Analyzes strengths and weaknesses of Toyin Trust Insurance Plc pre- and post-2000 ownership changes, and suggests strategies for sustaining the company.

Question

Toyin Trust Insurance Company is one of the duly registered insurance companies in Nigeria. Ten years after it started operations in 1990, the company had become a household name in the market. Its strengths included timely payment of claims and introduction of quality products that captured changing customers’ needs.

At inception, the company was 100% foreign-owned, with five of the seven directors being experienced expatriate insurance practitioners. However, by 2000, over 90% of the equity had been transferred to Nigerian investors. In 2009, following reorganization, many experienced senior managers resigned, and inexperienced staff took over key positions, leading to a decline in service quality and a 40% drop in premium collection.

Required:

a. Analyze the strengths of Toyin Trust Insurance Plc before 2000. (5 Marks)
b. Analyze the strengths and weaknesses of Toyin Trust Insurance Plc after 2000. (5 Marks)
c. Suggest essential strategies to sustain Toyin Trust Insurance Plc. (10 Marks)

Answer

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Tags: Business Growth, Organizational Challenges, Risk Mitigation, Strategic Management
Level: Level 2

Topic: Corporate Governance, Risk Management and Corporate Strategy
Series: NOV 2015

CSME – Nov 2015 – L2 – Q2 – Risk Management and Corporate Strategy

Develops a risk management program for theft, diversion, and safety issues; includes risk reduction and financing techniques.

Question

Dolly Homes Plc is a real estate firm based in Abuja. The firm builds residential apartments and office blocks in five states of the federation. The objective of Dolly Homes Plc is to deliver high-quality, aesthetically designed, and professionally built homes/offices to its customers at competitive prices. It employs several skilled and casual workers, construction supervisors, construction engineers, architects, and quantity surveyors.

The company maintains a store at each of its building sites, each manned by a storekeeper and an assistant. Building materials are purchased centrally and delivered to sites per material schedules prepared by the quantity surveyor.

Patronage from middle and high-income brackets has been impressive; however, recently, the company has been receiving complaints about poor quality. The most alarming complaint involved a legal threat for injuries sustained when a kitchen cabinet collapsed in a client’s home.

Management’s investigation revealed theft of materials, diversion, and re-work waste due to poor finishing. There were also job site accidents, leading to employee injuries, lost hours, and increased medical claims.

Management decided to establish a risk management program to address theft, diversion, and health/safety issues.

Required:
a. As an Accountant, develop a risk management program to address Dolly Homes Plc’s problems. (8 Marks)
b. Advise management on techniques to reduce the frequency of risk exposures in the future. (6 Marks)
c. Suggest risk financing techniques to protect the company’s staff from injuries and accidents. (6 Marks)

Answer

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Tags: Construction Industry Risks, Risk Financing, Risk Management, Safety Measures, Theft Prevention
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

Question

There are different methods of managing and controlling risks. Explain and illustrate any THREE of the following approaches to risk management:
i. Risk Diversification
ii. Risk Transfer
iii. Risk Sharing
iv. Risk Hedging (15 Marks)

Answer

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Tags: Credit risk, Risk Diversification, Risk Hedging, Risk Sharing, Risk Transfer
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

Question

The finance director of Basket Company is preparing a proposal to present to the board of directors. He believes that the company is much too cautious in its policy of giving credit to customers. At the moment all customers are given 30 days’ credit. He believes that by increasing its exposure to credit risk, and increasing credit terms to 60 days, the company will achieve an increase in annual sales of up to 20%. He also thinks that some improvements in debt collection procedures will reduce the level of bad debts, although some bad debts cannot be avoided. He thinks that the value of sales where there is a default will fall each year from 2% of sales to 1.8% of sales. He proposes that in order to increase annual sales and profits, the company should be willing to increase its risk appetite and accept the risk of higher bad debts.

Required:

Using this example of managing credit risk, explain and illustrate the meaning of:
i. Exposure to risk
ii. Risk of losses
iii. Residual risk
iv. Risk appetite

Answer

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Tags: Credit Period, Credit risk, Exposure to Risk, Residual Risk, Risk Appetite, Risk of Losses
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

CSME – May 2024 – L2 – SC – Q7 – Risk Management and Corporate Strategy

Discuss the inherent risks that affect the profitability of an insurance company operating internationally.

Question

At an in-house seminar for the top management staff of your organization, you have been appointed to present a report on the significant risks that have negatively affected the profitability of the two lines of business as presented in the Annual Report and Accounts of an insurance company with branches both within and outside Nigeria.

Required:

Present a report to the Management as a consultant, detailing the ‘risks inherent in an insurance company’.

Answer

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Tags: Corporate Strategy, Insurance, Risk Management
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2024

CSME – May 2024 – L2 – SA – Q2 – Risk Management and Corporate Strategy

Evaluate risk management practices and responsibilities in an oil exploration company.

Question

An oil exploration company is planning to overhaul its risk management infrastructure. Prior to this time, there has been an upsurge in the number of oil spillages and fire outbreaks at its production facilities. Preliminary investigation narrowed the cause of these incidents to inadequate and ineffective risk identification system. You have been appointed to head the newly constituted risk committee, saddled with the responsibility of strengthening the company’s risk identification system.

Required:

a. Explain the meaning, purpose, and importance of risk identification.
(7 Marks)

b. Outline the risk management process.
(8 Marks)

c. Describe the responsibilities of a risk committee.
(5 Marks)

Answer

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Tags: Committee Responsibilities, Oil Exploration, Risk Identification, Risk Management Process, Safety Protocols
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2024

CSME – May 2022 – L2 – SC – Q5 – Risk Management and Corporate Strategy

Advise on investment strategies to minimize risks and explain factors determining risk appetite.

Question

a. A friend of yours who recently lost his job came to you for advice on how to invest his life savings in a way that will minimize the risk of loss of capital.

i. Advise him on how risk of losses could be minimized using the following:
1. Risk Diversification (1 Mark)
2. Risk Transfer (1 Mark)
3. Risk Sharing (1 Mark)
4. Risk Hedging (1 Mark)
5. Risk Avoidance (1 Mark)
ii. Explain to your friend when risk diversification is the best option for him. (4 Marks)

b. What is risk appetite? Explain THREE factors that determine the risk appetite of a company. (6 Marks)

Answer

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Tags: Risk Avoidance, Risk Diversification, Risk Hedging, Risk Sharing, Risk Transfer
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2022

CSME – May 2022 – L2 – SB – Q2 – Risk Management and Corporate Strategy

Advise on risk management for a supermarket chain facing security challenges and new regulations.

Question

A supermarket chain recently established more outlets in the city. Due to increased risk exposure occasioned by heightened insecurity in the country, the company saw the need to implement an effective management strategy aimed at minimizing attendant risks. The need is made even more apparent due to the introduction of more stringent regulatory requirements on handling perishable food items by the National Agency for Food and Drugs Administration and Control (NAFDAC). To this end, you have been engaged to provide advice to the company on risk management.

Required:

i. Using the ALARP principle, advise the management on how to effectively manage the company’s risks. (2 Marks)
ii. Advise the company on the need to engage a risk manager. (2 Marks)
iii. Enumerate the roles of a risk manager. (5 Marks)

i. What is a risk audit? Should the firm engage internal or external auditors (or consultants) to conduct a risk audit? Justify your position. (7 Marks)
ii. Illustrate to the management of the company the stages involved in conducting a risk audit. (4 Marks)

Answer

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Tags: ALARP Principle, External audit, Internal Audit, Risk Assessment, Risk Audit, Risk Management
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2022

CSME – Nov 2016 – L2 – Q4b – Risk Management and Corporate Strategy

Educate new board members on the role of the board and management in identifying and assessing risks.

Question

As the chairman of the board of directors of Health Pharmaceutical Company, you are required to educate newly elected members of the board on the roles of the board and management in identifying and assessing risks.

Answer

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Tags: Board of Directors, Corporate Governance, Risk Assessment, Risk Identification
Level: Level 2