CIMA Strategic level P3 Risk Management Key Learning Points
CIMA Strategic level P3 Risk Management – CIMA Strategic level P3 Risk Management shows how to identify, evaluate and manage various risks that could adversely affect the implementation of the organisation’s strategy. It provides the competencies required to analyse, evaluate and apply the techniques, processes and internal control systems required to manage risk. This insight is then used to manage the risks associated with both cash flows and capital investment decisions – two important areas of organisational life for which the finance function is responsible.
CIMA Strategic level P3 Risk Management Summary of the Syllabus
The CIMA Strategic level P3 Risk Management draws on the knowledge gained from the operational and management level. It has five equally weighted areas that start with identification of risk and leads all the way through to responses, internal controls and managing risk associated with cash flows and capital management.
CIMA Strategic level P3 Risk Management subject is divided into a number of broad syllabus topics.
A percentage weighting is shown against each syllabus topic and is intended as a guide to the proportion of study time each topic requires
|20%||A. Identification, classification and evaluation of risk|
|20%||B. Responses to strategic risk|
|20%||C. Internal controls to manage risk|
|20%||D. Managing risks associated with cash flows|
|20%||E. Managing risks associated with capital investment decisions|
Learning Outcomes and Syllabus Content:
ALL learning outcomes will be tested in this exam and so it is important you cover each learning outcome below for each section of the exam.
I recommend you look to truly understand a learning outcome through reading, note taking, regular question practice and review, before moving onto the next.
If you can master all the learning outcomes, you will pass!
Section A: Identification, Classification and Evaluation of Risk – 20%
- A1 (a) Identify the types of risk facing an organisation
- A1 (b) Evaluate the organisation’s ability to bear identified risks
- A1 (c) Recommend responses to identified risks.
- A2 (a) Recommend techniques that will enable the board to discharge its responsibilities with respect to managing risks
- A2 (b) Advise the board on its responsibilities for reporting risks to shareholders and other stakeholders.
- A3 (a) Evaluate ethical, social and environmental issues arising from risk management.
- Upside and downside risks arising from internal and external source
- Risks arising from international operations, such as cultural differences and differences between legal systems
- Strategic and operational risks
- Quantification of risk exposures (impact if an adverse event occurs) and their expected values, taking account of likelihood
- Risk map representation of risk exposures as a basis for reporting and analysing risks
- Enterprise Risk Management and its components
- Risk mitigation including TARA – transfer, avoid, reduce, accept
- Gross and net risks.
- Assurance mapping and similar techniques for describing risks and their associated responses
- The control environment.
- Internal control.
- Risk register
- Risk reports and stakeholder responses
- The identification of ethical dilemmas associated with risk management.
- Reputational risks associated with social and environmental impacts.
Section B: Responses to Strategic Risk – 20%
- B1 (a) Recommend appropriate measures for the strategic control and direction of various types of organisations
- B1 (b) Recommend solutions for the risks of dysfunctional behaviour arising from the associated models of performance measurement
- B1 (c) Advise managers of the risks in the development of strategies for information systems that support the organisation’s strategic requirements.
- B2 (a) Evaluate the risks of unethical behaviour.
- B3 (a) Evaluate the risks associated with poor governance structures.
- Business unit performance and appraisal, including transfer pricing and taxation, reward systems and incentives.
- Non-financial measures and their interaction with financial measures.
- Risks of performance measurement, including the Balanced Scorecard (BSC).
- Lean systems.
- Cost of quality.
- Big Data as a strategic resource
- Dysfunctional behaviour associated with measures of control and direction
- The purpose and contents of information systems strategies, and the need for strategy complementary to the corporate and individual business strategies
- Ethical issues identified in the CIMA Code of Ethics for Professional Accountants.
- Application of the CIMA Code of Ethics for Professional Accountants.
- The board’s responsibilities for the management of stakeholders’ interests.
- The separation of the roles of CEO and chairman.
- The role of non-executive directors.
- The roles of audit committee, remuneration committee, risk committee and nominations committee.
- Directors’ remuneration.
- The agency implications of salaries, bonuses, performance-related pay, executive share options and benefits in kind
Section C: Internal controls to manage risk – 20%
- C1 (a) Evaluate the appropriateness of control systems for the management of an organisation.
- C2 (a) Evaluate the essential features of internal control systems for identifying, assessing and managing risks.
- C3 (a) Evaluate the effective planning and management of internal audit and internal audit investigations.
- Application of control systems and related theory to the design of management accounting control systems and information systems in general.
- Control systems within functional areas of a business including HR, sales, purchases, treasury, distribution, IT.
- Identification of appropriate responsibility and control centres within the organisation.
- Performance target setting.
- Performance appraisal and feedback.
- Cost of quality applied to the management accounting function and ‘getting things right first time’.
- Responses to risks in control systems for management
- Minimising the risk of fraud: fraud policy statements, effective recruitment policies and good internal controls, such as approval procedures and separation of functions.
- The risk manager role as distinct from that of internal auditor.
- Purposes of internal control: the achievement of an entity’s objectives, effectiveness and efficiency of operations.
- Identifying and evaluating control weaknesses.
- Identifying and evaluating compliance failures.
- Operational features of internal control systems, including embedding such systems in a company’s operations, responsiveness to evolving risks and timely reporting to management.
- The pervasive nature of internal control and the need for employee training.
- Costs and benefits of maintaining the internal control system.
- Disaster recovery.
- Forms of internal audit: compliance audit, fraud investigation, value for money audit/management audit, social and environmental audit.
- Operation of internal audit, the assessment of audit risk and the process of analytical review, including different types of bench marking, their use and limitations.
- Effective internal audit: independence, staffing and resourcing, organisational remit.
- The preparation and interpretation of the internal audit report
Section D: Managing risks associated with cash flows – 20%
- D1 (a) Evaluate financial risks facing an organisation.
- D2 (a) Advise on the effects of economic factors that affect future cash flows from international operations
- D2 (b) Evaluate appropriate methods for the identification and management of financial risks associated with international operations
- D2 (c) Evaluate appropriate methods for the identification and management of financial risks associated with debt finance.
- Sources of financial risk associated with international operations.
- Transaction, translation, economic and political risk.
- Quantification of risk exposures, their sensitivities to changes in external conditions and their expected values.
- Exposure to interest rate risks.
- Exchange rate theory and the impact of differential inflation rates on forecast exchange rates.
- Theory and forecasting of exchange rates (e.g. interest rate parity, purchasing power parity and the Fisher effect).
- Value at risk
- Minimising political risk.
- Responses to economic transaction and translation risks.
- Operation and features of the more common instruments for managing interest rate risk: swaps, forward rate agreements, futures and options.
- Techniques for combining options in order to achieve a specific risk profile: caps, collars and floors.
- Internal hedging techniques
- Operation and features of the more common instruments for managing currency risk: swaps, forward contracts, money market hedges, futures and options.
Note: The Black Scholes option pricing model will not be tested numerically. However, an understanding of the variables which will influence the value of an option will be assumed
Section E: Managing risks associated with capital investment decisions – 20%
- E1 (a) Evaluate investment projects
- E1 (b) Evaluate conflicts that may arise from capital investment decisions
- E1 (c) Evaluate the outcomes of projects post implementation and post completion
- Cost of capital and risk.
- Recognising risk using the certainty equivalent method (when given a risk free rate and certainty equivalent values).
- Adjusted present value. (NB The Two step method may be tested for debt introduced permanently and debt in place for the duration of the project)
- Managing conflicts between different stakeholder groups (profit maximisation versus wealth maximisation).
- Managing conflicts arising from performance indicators.
- Monitoring the implementation of plans.
- Post completion audit
CIMA Strategic level P3 Risk Management Assessment
Format: computer based Objective Test
Availability: on demand at any of the 5000 Pearson VUE centres around the world
Length: 90 minutes
Marking: computer marked
Results: provisional result available immediately followed by confirmation no more than 48 hours later
Objective Tests are comprised of a range of items including short multiple choice questions, number entry questions, drag and drop questions and other formats. They test all component learning outcomes across the whole subject.
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