Fundamentals of Risk Management

Establishing the context
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The other component of the FIRM risk scorecard relevant to the external environ-
ment is the marketplace and the level of presence of the organization within the 
marketplace. This will impact the level of customer trade or expenditure. In particular, 
when evaluating the marketplace component of the external environment, the
following issues should be addressed:
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level of revenue generation in the marketplace and return on investment;
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presence of aggressive competitors and/or high customer expectations;
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level of economic stability, including exposure to interest rates and foreign 
exchange rates;
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complexity of the supply chain and volatility of raw material costs;
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exposure to international disruption because of political risks, war and 
terrorism.
The FIRM risk scorecard offers one mechanism for evaluating the external context 
of the organization, but other structures may be employed, such as a strengths, 
weaknesses, opportunities and threats (SWOT) analysis or the use of one of the risk 
classification systems discussed in Chapter 11. The overall purpose of evaluating the 
external context is to determine the level of riskiness associated with the external 
environment within which the organization operates. This will enable the organiza-
tion to validate the existing business model and develop strategy for the future,
together with the tactics for implementing that strategy.
Good stewardship by the board should not inhibit sensible risk taking that is critical to 
growth. However, the assessment of risks as part of the normal business planning process 
should support better decision taking, ensure that the board and management respond 
promptly to risks when they arise, and ensure that shareholders and other stakeholders are 
well informed about the principal risks and prospects of the company. The board’s 
responsibility for the organization’s culture is essential to the way in which risk is considered 
and addressed within the organization and with external stakeholders.
FRC risk guidance
September 2014
external stakeholders