Question

Buisness Plan: Financial Planner

When preparing the critical risks list, it’s important to mention those risk that have the most potential to impact your business plan project positively or negatively. Identifying critical risks is a process of prioritization and this an output of qualitative or quantitative risk analysis. Risk prioritization facilitates the process of risk mitigation and response planning. There are several tools which can help with risk prioritization, particularly the "risk register" and the "risk matrix", following we show how to build each one.

Risk Matrix

S Probability of occurrence

E Risk Assessment Matrix Very Unlikely Possibly Likely Very
unlikely to could to likely to
V to happen happen happen happen
happen
E 5. Catastrophic (e.g fatal) Moderate Moderate High Critical Critical

R 4. Major (e.g permanent Low Moderate Moderate High Critical
disability)

I 3. Moderate (e.g Low Moderate Moderate Moderate High
Hospitalisation/short- or
T long-term disability)

Y 2. Minor (e.g First Aid) Very Low Low Moderate Moderate Moderate

Superficial (e.g no Very Low Very Low Low Low Moderate
treatment required)

Risk Register

Critical risk Severity (From 1 to 5 being 1 Probability of occurrence (from 1 to
the less critical and 5 the most) 5, being 1 the less probable and 5 the most)
A
B
C
D
E

Answer 1

Including a risk matrix and risk register in a business plan is crucial for identifying and prioritizing risks based on their severity and likelihood, which aids in developing risk mitigation strategies. In finance, risk analysis helps balance the rate of return with potential risks, guiding investment decisions and capital supply.

Step-by-step explanation:

When preparing a business plan, it is vital to include a risk matrix and risk register to identify and prioritize potential risks. The risk matrix categorizes risks based on the severity of their impact and their probability of occurrence. For example, a catastrophic event may be unlikely, but due to its severe consequences, it is treated with high priority. A risk register complements this by listing each identified risk along with its assessed severity and likelihood, helping in the development of mitigation strategies.

Understanding risk is essential when making financial decisions. The rate of return is typically weighed against the potential risks of financial assets. A higher risk can shift investments from one asset to another, impacting the supply of financial capital. Hence, risk analysis is a crucial skill for informed decision-making in our economy, ensuring that individuals can plan and balance their financial future effectively.