ACCA Strategic Business Leader (SBL) Practice Exam

What defines related risks in risk management?

1. Risks that are completely independent of one another

2. Risks that have a mutual cause and affect each other

3. Risks that never change over time

4. Risks that can be easily predicted

The correct answer is: Risks that have a mutual cause and affect each other

Related risks in risk management are defined as those that have a mutual cause and affect each other. This concept recognizes that various risks can be interconnected, meaning that the occurrence of one risk can influence the likelihood or impact of another. For instance, a financial risk may stem from a strategic decision, and any adverse event in that strategy could trigger operational issues. This understanding of interrelated risks is crucial for effective risk assessment and management, as it allows organizations to take a more holistic approach. Instead of considering each risk in isolation, recognizing their relatedness enables the development of comprehensive strategies that address potential cascades of risk events. In contrast, risks that are completely independent of one another do not influence each other, which limits the effectiveness of an integrated risk management approach. Similarly, risks that never change over time would not realistically reflect the dynamic nature of business environments where risks evolve and shift. Finally, risks that can be easily predicted undermine the uncertainty that is intrinsic to most risks, and overlooking the complexity of risk relationships can lead to inadequate risk management frameworks.