Hi sir, for December 2013 exam question 1(b) regarding the assessment of the risks and suitable risk strategies.
When asked for the assessment of risks, we have to consider two variables; the probability and impact of the risk.
So how do we tell whether the probability of a risk materialising is high or low ? If it’s below 50% it is low and if it’s above 50% it’s considered high. Am I right ?
Likewise, how do we tell whether the impact is considered high or low ? Is there a rough gauge ?
Probability of occurrence? You are correct – >50% is high risk whereas <50% is low risk
As for impact – apply materiality considerations … so “what is the impact on the profit if this happens?”
How this is done in practice … the application of experience from those in managerial positions
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