Identifying Strategic Risk - ch.12

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University of Toronto Scarborough
Financial Accounting
Prof.Jan Klakurka

MGTD54 Week 10 March 24, 2011 Ch. 12 Identifying Strategic Risk (p.255-274) Strategic Risk: unexpected event or set of conditions that significantly 9reduces the ability of managers to implement their intended business strategy 3 sources of strategic risk: 1. Operations risk 2. Asset impairment risk 3. Competitive risk Operations Risk - Breakdown in core operating, manufacturing, or processing capability - Impedes flow of high-quality products and services - Critical product, process failures - Basic business strategy affect firm exposure to operations risk - Consequences triggered by employee error Applying Inputs -> Process -> Outputs Model - Technology failure lead to inefficiencies and breakdowns - Key process standardized and controlled to assure safety and quality - Use in critical parts of value chain to identify points where system errors damage key operations or impair important assets - Use TQM based on best practice, benchmarking, engineering studies Asset Impairment Risk - Resource owned to generate future cash flows - Losing significant portion of current value - Reduction in likelihood of receiving future cash flows - Strategic risk if deterioration in financial value, intellectual property rights, physical condition Financial Impairment - Decline in MV of BS asset help for resale or collateral - Future cash flows no longer sufficient to support BS valuation - Credit risk: when creditor insolvent and unable to pay contractual obligations - Balance risk and reward when granting credit (sales vs. default) - Sovereign risk: risk at national level when foreign govt unable to pay debts
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