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P3 – Risk Management

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Showing 7–9 of 15 questions

Question 7

M a manufacturing company has had some problems with defects in one of the main products it produces. This product has been made by the company for many years and is very profitable. Last month it had over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability.

Which of the following controls could M introduce to reduce defects and also increase profitability?

Select all that apply, then click Submit answer.

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    M could increase the number of quality control staff.
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    M could introduce a procedure where quality control staff sign a form at the end of each day to say they have examined 1 in 10 products for defects and they are satisfied with the quality.
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    The production director could examine one in every 10 products and sign a form to say they are satisfactory.
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    M could service machinery at least once a month as recommended by the machinery supplier.
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    M could check all employees qualifications to ensure they are qualified for their jobs.
Question 8

M built a large factory last year and it has just been completed. The initial outflows on this project have a present value of $400 million and the entire project has a net present value of $30 million.

The initial phase of the project caused problems and there was an overspend of $35 million as there was unstable soil. The foundations had to be underpinned with large steel bars to ensure the building would be safe. There was no other suitable site for the project.

The construction could not be abandoned as the site would have had very little commercial value.

The Internal Audit department has been asked to carry out a post completion audit. What issues should it concentrate on?

Select all that apply, then click Submit answer.

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    The audit should consider the initial survey report when the land was purchased to see if the survey mentioned the unstable soil.
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    The audit should look at documentation to ensure proper procedures were followed at all stages of the project.
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    The audit should consider what lessons could be learned for future projects.
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    The audit should find out who was to blame for the project being over budget.
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    The audit should consider whether it should have built the factory without underpinning and sold it on quickly.
Question 9

K plc is a large listed company in the retail industry. It has recently appointed T as a non-executive director. T has never had any previous involvement with K plc but is well known to K's Chief Executive P because T is the Managing Director of K plc's largest supplier.

K has recently expanded into Asia. Doubts about the wisdom of the move have been expressed in the financial press with some journalists commenting that it has exposed K plc to higher degrees of risk than previously. The move had been approved by the Risk Committee which consists of four Non-Executive Directors (NEDs) all of whom have significant experience in business.

K plc does not have a Nominations Committee. Nominations to the Board are usually proposed by P and generally agreed by the other directors.

In relation to the above scenario which of the following comments is valid?

Select an option, then click Submit answer.

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    K plc is in line with best practice as it only has NEDs on its Risk Committee.
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    There is no possible conflict of interest in relation to T's position as a NED and as Managing Director of a supplier company since in both roles he would clearly want K plc to prosper.
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    The Risk Committee should have rejected the proposal to enter the Asian market merely because it exposed K to greater risk than the other markets in which it operates.
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    The absence of a Nominations Committee exposes K plc to the risk that the Chief Executive may have unfettered power.