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SHRM CP 2020 > 4 - Workplace: Risk Management > Flashcards

4 - Workplace: Risk Management Flashcards

1
Q

Risk

A
  • The effect of uncertainty on objectives” (from ISO 31000)
  • Could take the form of threats or opportunities
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2
Q

Risk Management

A
  • “Coordinated activities to direct and control an organization with regard to risk”
  • Change probabilities or magnitude of impact on objectives
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3
Q

Benefits of Risk Management

A
  • Strategic alignment of risk levels and management
  • •More effective response to risk
  • More consistent response across the organization
  • Fewer resources wasted
  • More integrated vision of risk in the organization
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4
Q

Barriers to Risk Management

A
  • Structural—silo organizational structures
  • Cognitive—mindset lacking imagination, or one of unreasonable optimism, resistance to change
  • Cultural—poor alignment of the organization’s culture; inadequate communication of the culture’s risk approach
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5
Q

ISO 31000

A

11 principles—for example:

  • Focused on value and continual improvement
  • Integrated into all processes and decision making
  • Transparency
  • Responsive to change

Framework

  • Management commitment
  • Policies, processes, ethics, values, leaders’ examples, culture

Risk management process

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6
Q

Step 1: Establish the context of risk.

Risk Management

A
  • Know internal and external sources of risk.
  • Define risk criteria:
    • Risk position (acceptable gain or loss)
    • Risk appetite and risk tolerance (acceptable amount of uncertainty)
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7
Q

Strength of Organization’s Governance

A
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8
Q

Common Misaligned Risks

A

Moral hazard

  • One party engages in risky behavior knowing that another party will incur any resulting loss.

Principal-agent problem

  • An agent (ER) makes decisions on behalf of a principal (EE) but has personal incentives not aligned with those of the principal (EE).

Conflict of interest

  • A person or organization has the potential to be influenced by two opposing sets of incentives.
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9
Q

Step 2: Identify and analyze risks.

Risk Management

A

Methods:

  • Experts and information sources
  • Focus groups and interviews
  • Surveys
  • Process analysis
  • Direct observation
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10
Q

Duty of Care

A

Employer’s responsibility to take all reasonable steps to ensure the health, safety, and well-being of employees and protect them from foreseeable injury

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11
Q

Risk Formula

A

Risk level = Probability of occurrence ´ Magnitude of impact

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12
Q

Risk Scorecard

A
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13
Q

Risk Matrix

A
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14
Q

Prepare, Act, Park, Adapt (PAPA) model

A
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15
Q

Key Risk Indicators (KRIs)

A

Early signals of increasing risk exposure; critical part of preparedness.

  • Strategically aligned.
  • Developed by identifying root causes of risks and intermediate events.
  • Monitor for changes
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16
Q

Risk Register

A
  • Risk category
  • Risk event
  • Risk classification
  • KRIs
  • Risk management controls
  • Risk owner(s)
  • Reporting requirements
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17
Q

Step 3: Manage risk.

A
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18
Q

Eliminate Uncertainty

A
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19
Q

Redefine Ownership

A
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20
Q

Increase/Decrease Effect

A
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21
Q

Take No Action

A
22
Q

Residual Risk

A

The amount of risk that remains after all management efforts have been exhausted

23
Q

Implementing Risk Management Plan

A
  • Define objectives.
    • Be strategically focused.
    • Combine activities and results.
    • Combine lagging and leading metrics.
  • Modify risks related to noncompliance.
  • Instill risk management principles in organization’s members and processes.
  • Integrate actions across organization.
  • Communicate needs, expectations, and new policies and processes
24
Q

Emergency Preparedness

A
  • Emergency response planning and training
  • Securing employee health and safety
25
Q

Business Continuity Plan

A
  • Continuation of critical business processes
  • Securing and supporting necessary human resources
26
Q

Crisis Management Process

A
27
Q

Contingency Plans

A
  • Policies
  • Evacuation and relocation
  • Communication
  • Training
  • Continuity
28
Q

Managing Workplace Risk

A
  • Security threats
    • Cyber threats
    • Physical security
  • Illness and injury
    • Physical
    • Chemical
    • Biological
  • Drug use
    • Illegal or legal drugs or alcohol
    • Before, during, or after working hours
29
Q

Step 4: Evaluate.

A
  • Increase transparency and accountability
  • Confirm compliance
  • Assess the effectiveness of individual strategies
  • Assess the effectiveness of the organization’s risk management framework
  • Continually improve risk management skills
  • Conduct debriefs and incident investigations
  • Facilitate and investigate whistleblowing charges (and prevent retaliation).
  • Conduct audits.
    • Health and safety
    • Compliance
    • Process
30
Q

Quality Assurance (QA)

A
  • Helps to ensure that work is performed according to standards and that processes are used correctly and completely.
  • Considers proactive, preventive, predictive, and preemptive actions.

Risk management is not static; it is a continuous activity.

31
Q

Continuous Improvement

A

Equates to organizational approaches to improve and maintain the quality of risk management processes.

Risk management is not static; it is a continuous activity.

32
Q

Known Knowns

A

Events that are to be expected and so involve little uncertainty.

33
Q

Known Unknowns

A

Uncertainties that we know exist but we don’t know much about their probability or impact.

34
Q

Unknown Unknowns

A
  • Risks that we don’t know exist.
  • They are the events that “blindside” an organization (or individuals or entire cultures)
35
Q

Internal and Preventable

Kaplan and Mikes

A

These risks come from within the organization and could include violations of ethics and failures in routine processes.

36
Q

Strategy

Kaplan and Mikes

A
  • This is desirable uncertainty that an organization willingly accepts when it commits to a strategy.
  • Example: Uncertainty whether loans can be repaid or employees will be fully productive.
37
Q

External

Kaplan and Mikes

A
  • These sources of uncertainty are outside the organization and beyond its control.
  • They would include changes in the economy or laws and regulations, disruptive technologies, and availability of trained employees.
38
Q

Enterprise Risk Management—Integrated Framework (ERM Framework)

Committee of Sponsoring Organizations of the Treadway Commission (COSO)

A
  • Considers risk to be an integrated issue that must be managed across functions and divisions in an enterprise.
  • 4 categories:
    • Strategy
    • Operations
    • Financial Reporting
    • Compliance
39
Q

Strategy

Enterprise Risk

A

Risks that affect the organization’s ability to achieve its objectives

40
Q

Operations

Enterprise Risk

A

Risks that affect the myriad ways in which the organization creates value

41
Q

Financial reporting

Enterprise Risk

A

Risks that affect the accuracy and timeliness of information about the organization’s financial performance and condition

42
Q

Compliance

Enterprise Risk

A

Risks associated with meeting the requirements of laws and regulations

43
Q

Tools to Prevent Risk

A
  • SWOT: assess strategic capabilities in comparison to threats and opportunities
  • PESTLE: searches for environmental forces (political, economic, social, technological, legal, environmental)
44
Q

Risk Position

A

Organization’s desired gain or acceptable loss in value

45
Q

Risk Appetite / Risk Tolerance

A
46
Q

Single Loss Expectancy

SLE

A

Expected monetary loss every time a risk occurs:

= Asset Value (AV) x Exposure Factor (EF)

47
Q

Annualized Loss Expectancy

ALE

A

Expected monetary loss of an asset due to risk over a one-year period

= Single Loss Expectancy x Annualized Rate of Occurrence (ARO)

48
Q

Moral Hazard

A

When one party engages in risky behavior knowing that is protected against the risk because another party will incur any resulting loss.

  • Under report accidents to earn incentive
  • Overuse health beneifts
  • Overestimate an inventory count to understate the cost of goods sold
  • Borrow beyond ability to repay the loan
49
Q

Principal-Agent Problem

(Agency Dilemma)

A

Economic concept often associated with moral hazard in employment.

  • When an employee makes decisions on behalf of the employer but has personal incentives not align with the employer.
50
Q

Conflict of Interest

A
51
Q

MECE

Mutually Exclusive and Comprehensively Exhaustive

A
52
Q

Whistleblowing

A

Reporting of an organization’s violations of policies and processes by employees, applies directly to risk management

SHRM CP 2020 (19 decks)

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