1 - The meaning of risk Flashcards
What type of information helps us to make informed decisions and avoid unnecessary risks?
Comparative information
When looking at emerging risks, it is important to look at:
the likely causes and the effects
Which mathematical theory shows how the values of a set of similar random events are distributed about the mean value?
The normal curve.
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?
Speculative
Isbicycles likely to be perceived as low dread(fearofsomethinghappening)/low unknown risk?
Yes
If we voluntarily take a risk, what impact does this have on our risk perception and why?
The perception of risk is reduced because it is our choice and our responsibility.
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?
Third level.
Liquidity risk is BEST described as the:
risk of an organisation running out of cash when it is needed to meet financial obligations
Do people over or underestimate their ability to control risks
Overestimate
What is modern risk management seen as
A new discipline, effectively dating from the latter part of the twentieth century
What is risk management based on
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.
When can we trace mathematical analysis of games of change back to
sixteenth century. Analysis of historical life expectancy data and shipping records can be traced back to the seventeenth century.
What does statistical data from past allow
people to judge what might happen in the future andformed the basis of insurance business.
The 18th and 19th century saw developments in what
statistical analysis, analysis of distributions and theorems based on these advances, such as regression to the mean.
What was recognized by the 20th century
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.
Risk management as we recognize it developed after what
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.
Health and safety measures became what
commonplace, and continuity plans came into existence ensuring business continuity in the event of disaster.
Government regulation has widened and there is a growing emphasis on what?
there is growing emphasis on responsibility and accountability for not controlling risk.
Why do people react differently to identical risks
People view risks in different ways
When are people more willing to accept risk
Risks they can control
Are man made or natural risks more accepted
Natural
Does familiarity affect perception
Yes
Why do organisations need to define key risks (stakeholders)
So that all stakeholders share a clear and common understanding
What is a speculative risk
where someone deliberately chooses to place money or other resources at risk in the hope of obtaining a positive outcome.
What is a pure risk
is a category of risk in which loss is the only possible outcome: there is no beneficial result.
Other types of risk
strategic risk, operational risk, market risk, credit risk, liquidity risk, business risk, insurance risk, reputation risk, and regulatory and legal risks.
Can damage take other forms other than financial?
Yes, it is not always measured in financial terms
Is every risk associated with cause and effect
Yes
To fully understand a risk we must study
its cause as well as its effect.
Approximately when did modern risk management ideas originate?
From the middle of the twentieth century.
How were risks viewed before the seventeenth ceintury?
As fate or acts of God.
Why did governments introduce regulation of financial institutions?
To contain the effects of risks they take so that the general public are protected.
What characteristics of a risk cause people most concern?
• 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).
What is the link between risk and uncertainty?
We cannot be sure exactly when or how often a risk will materialize or precisely what its full consequences will be.
Why is it necessary for an organisation to publish, definitions of risks?
So that all employees and other stakeholders have a common understanding of discussions and reports.
What is the difference between pure and speculative risk?
Pure risk only has negative consequences. Speculative risk can have negative consequences but is accepted in the expectation of adequate reward.
Why do you need to understand the causes of individual risks?
Often it is easier to prevent or control causes of risk rather than try to deal with anticipated consequences once a risk has materialised.
Why is understanding risk perception important in managing risks?
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.
What is the link between risk and reward?
A person or organisation pursuing an opportunity balances risks involved against perceived rewards.
Risk vs Uncertainty
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.
