Risk, uncertainty and contingency planning: Practice Questions

• a.Risk is caused by internal factors only, while uncertainty is caused by external factors.
• b.Risk can always be avoided by managers, but uncertainty is a guaranteed part of business.
• c.Risk refers to financial losses only, while uncertainty refers to non-financial issues.
• d.Risk involves known potential outcomes with calculable probabilities, whereas uncertainty involves unknown outcomes.

• a.An automatic increase in the firm's market share
• b.Improvement in the business's brand image due to 'bold' decision-making
• c.Increased difficulty in securing affordable finance from lenders and investors
• d.A guaranteed reduction in total variable costs

• a.Diversifying the product portfolio to spread risk across different markets
• b.Increasing fixed costs by purchasing highly specialized, non-adaptable machinery
• c.Ignoring external data and relying solely on historical internal sales figures
• d.Focusing all R&D budget on a single, high-risk innovation

• a.A change in the national minimum wage legislation
• b.An increase in interest rates by the Central Bank
• c.Failure of a major piece of internal machinery
• d.A sudden recession in the national economy

• a.

  An inverse relationship where the highest risks always lead to the lowest rewards.

• b.

  A positive correlation where higher potential risks require higher potential rewards.

• c.

  A relationship where rewards are only possible if the risk is eliminated entirely.

• d.

  A static relationship where the level of risk has no impact on expected profit.

Write your answer out first, then check it against the worked solution.

Write your answer out first, then check it against the worked solution.

Write your answer out first, then check it against the worked solution.