Accredited ACH Professional (AAP) Practice Exam

What type of risk involves pursuing one business strategy over another?

1. Operational Risk

2. Reputational Risk

3. Strategic Risk

4. Compliance Risk

The correct answer is: Strategic Risk

Strategic risk refers to the potential for losses or adverse outcomes that could result from a failure to effectively implement a chosen business strategy. This type of risk arises specifically from the strategic decisions that a company makes, such as entering new markets, launching new products, or altering its overall business model. When a business chooses one strategic approach over another, it inherently exposes itself to various uncertainties and challenges associated with that choice. For instance, if an organization decides to expand into a new geographic area without fully assessing the market dynamics or competitor actions, it may face unexpected obstacles that could negatively impact its financial performance or market position. In contrast, operational risk pertains more to the inefficiencies and failures in internal processes or systems, reputational risk relates to the potential damage to the organization's reputation due to various factors, and compliance risk is associated with failing to adhere to regulations and legal requirements. Each of these risks operates in different dimensions, which highlights the unique nature of strategic risk in the context of business decisions.