Business Model
Whether it be to earn money or a charitable goal, we need to have a business model. A business model consists of the business objectives (eg. vision, mission, and high-level strategies) and how the business processes achieve these objectives.
Two main approaches to understanding the business model are:
a) Top-Down Approach – It begins by determining the business’s overarching objectives and then analyzes the key processes critical to achieving these objectives.
b) Bottom-Up Approach – Begins by examining all the business processes at the activity level and then identifies the overall business objectives.
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Business Processes
A business process is a set of related activities and tasks brought together to achieve the desired outcome, and it can be broken down into below 3 types of business activities:
a) Operating processes – Activities related to the business’s core objectives
b) Projects – Related activities that either (i) are nonroutine (ii) contribute directly to achieving the business’s core objectives but only happen over an extended period
c) Management and Support Processes – activities that supervise and support business
Process Mapping
Process mapping is a simple form of flowcharting used to depict a business process. It helps identify potential improvements to the processes as well as document and confirm appropriate internal controls.
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Key Performance Indicators (KPI)
KPIs are used to provide management with an indication of how well employees are executing the processes and related activities. They are easily measurable and observable, as well as highly relevant to the business process or activity.
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Business Process Risks
Risk is the probability of an event occurring that will have an impact on the achievement of objectives.
A risk profile of business risks should be developed before the risk management process begins. There are four general types of business risks:
a) Strategic risks
b) Compliance risks
c) Reporting risks
d) Operational risks
Risk Management assesses and controls these risks to achieve an organization’s goals. Risk Management Process consists of the following steps:
a) Identifying the context within which risks should be managed
b) Identifying risks at every level
c) Assessing risks
d) Implementing risk responses
e) Monitoring risks and risk responses
Measuring Risks
Risk is measured in terms of the (1) probability of an event occuring, and (2) magnitude of impact, which serve as the bases for determining and implementing risk responses.
Responses to Business Risks
- Acceptance
- Avoidance
- Pursuit
- Reduction
- Transfer (e.g., insurance transfers risks from the business to the insurer)
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