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The question is: Discuss how the management team’s attitude to risk might affect their response
The closest thing to Management from the scenario was the Risk Management Committee that sounded optimistic, so I started off my answer from there.
The ACCA provided answer however started from the view of the shareholders.
I have convinced myself that I should have read the question as Management should reflect the risk appetite of shareholders-please is my understanding correct?I’ not sure that the risk management team is particularly optimistic as they have recognised that they have not been able to assign relative probabilities.
I think this part of the question is relatively theoretical and the answer is essentially captured by:
“- risk averse individuals tend to assume the worst outcome and seek to minimise its effect
– risk seekers are interested in the best outcomes and seek to maximise their returns under these circumstances
– risk neutral individuals are interested in the most probable outcome”.Ie attitude to risk can lead to very different decisions.
Ideally, the risk appetite of management and the risk management team should mirror the attitude of shareholders, which here seems to be risk averse.
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