1 - The meaning of risk

Question 1

What type of information helps us to make informed decisions and avoid unnecessary risks?

Answer 1

Comparative information

Question 2

When looking at emerging risks, it is important to look at:

Answer 2

the likely causes and the effects

Question 3

Which mathematical theory shows how the values of a set of similar random events are distributed about the mean value?

Answer 3

The normal curve.

Question 4

A confectionery company is planning to launch a new flavour of chocolate bar, which it hopes will increase its turnover by 10%. What type of risk is this?

Answer 4

Speculative

Question 5

Isbicycles likely to be perceived as low dread(fearofsomethinghappening)/low unknown risk?

Answer 5

Yes

Question 6

If we voluntarily take a risk, what impact does this have on our risk perception and why?

Answer 6

The perception of risk is reduced because it is our choice and our responsibility.

Question 7

An individual has stopped smoking because of pressure from friends about the potential health risks. Applying Renn and Rohrmann’s framework of risk perception, this demonstrates which level of influence?

Answer 7

Third level.

Question 8

Liquidity risk is BEST described as the:

Answer 8

risk of an organisation running out of cash when it is needed to meet financial obligations

Question 9

Do people over or underestimate their ability to control risks

Answer 9

Overestimate

Question 10

What is modern risk management seen as

Answer 10

A new discipline, effectively dating from the latter part of the twentieth century

Question 11

What is risk management based on

Answer 11

fundamental mathematical concepts of risk perception and measurement developed by mathematicians and scientists during the previous three hundred years. Before that risk outcomes were attributed to God or fate.

Question 12

When can we trace mathematical analysis of games of change back to

Answer 12

sixteenth century. Analysis of historical life expectancy data and shipping records can be traced back to the seventeenth century.

Question 13

What does statistical data from past allow

Answer 13

people to judge what might happen in the future andformed the basis of insurance business.

Question 14

The 18th and 19th century saw developments in what

Answer 14

statistical analysis, analysis of distributions and theorems based on these advances, such as regression to the mean.

Question 15

What was recognized by the 20th century

Answer 15

that history was not always a reliable guide to future events. Emphasis was on dealing with uncertainty and making decisions with a range of possible outcomes.

Question 16

Risk management as we recognize it developed after what

Answer 16

World War II and was accelerated by technology advances such as the availability of computers. People stopped relying on insurance and concentrated on preventing or mitigating the effects of risk incidents.

Question 17

Health and safety measures became what

Answer 17

commonplace, and continuity plans came into existence ensuring business continuity in the event of disaster.

Question 18

Government regulation has widened and there is a growing emphasis on what?

Answer 18

there is growing emphasis on responsibility and accountability for not controlling risk.

Question 19

Why do people react differently to identical risks

Answer 19

People view risks in different ways

Question 20

When are people more willing to accept risk

Answer 20

Risks they can control

Question 21

Are man made or natural risks more accepted

Answer 21

Natural

Question 22

Does familiarity affect perception

Answer 22

Yes

Question 23

Why do organisations need to define key risks (stakeholders)

Answer 23

So that all stakeholders share a clear and common understanding

Question 24

What is a speculative risk

Answer 24

where someone deliberately chooses to place money or other resources at risk in the hope of obtaining a positive outcome.

Question 25

What is a pure risk

Answer 25

is a category of risk in which loss is the only possible outcome: there is no beneficial result.

Question 26

Other types of risk

Answer 26

strategic risk, operational risk, market risk, credit risk, liquidity risk, business risk, insurance risk, reputation risk, and regulatory and legal risks.

Question 27

Can damage take other forms other than financial?

Answer 27

Yes, it is not always measured in financial terms

Question 28

Is every risk associated with cause and effect

Answer 28

Yes

To fully understand a risk we must study
its cause as well as its effect.

Question 29

Approximately when did modern risk management ideas originate?

Answer 29

From the middle of the twentieth century.

Question 30

How were risks viewed before the seventeenth ceintury?

Answer 30

As fate or acts of God.

Question 31

Why did governments introduce regulation of financial institutions?

Answer 31

To contain the effects of risks they take so that the general public are protected.

Question 32

What characteristics of a risk cause people most concern?

Answer 32

• dread (lack of control, catastrophic potential, inequitable distribution of benefits and dreadful consequences); and
• unknown risks (limited knowledge of risk, possible delayed effect and unknown consequences).

Question 33

What is the link between risk and uncertainty?

Answer 33

We cannot be sure exactly when or how often a risk will materialize or precisely what its full consequences will be.

Question 34

Why is it necessary for an organisation to publish, definitions of risks?

Answer 34

So that all employees and other stakeholders have a common understanding of discussions and reports.

Question 35

What is the difference between pure and speculative risk?

Answer 35

Pure risk only has negative consequences. Speculative risk can have negative consequences but is accepted in the expectation of adequate reward.

Question 36

Why do you need to understand the causes of individual risks?

Answer 36

Often it is easier to prevent or control causes of risk rather than try to deal with anticipated consequences once a risk has materialised.

Question 37

Why is understanding risk perception important in managing risks?

Answer 37

Anyone trying to manage risk must recognise the multitude of factors determining how risks are going to be perceived and take them into account when making practical decisions.

Question 38

What is the link between risk and reward?

Answer 38

A person or organisation pursuing an opportunity balances risks involved against perceived rewards.

Question 39

Risk vs Uncertainty

Answer 39

We have seen that risk is associated with uncertainty. We may be able to identify a risk but be uncertain about how often and when it will materialise in the future, if at all.