7 - Risk management lessons Flashcards
Which risk management standard is a British manufacturing firm MOST likely to adopt if it requires just generic guidance on risk management standards?
ISO 31000.
The aviation industry is known for having a no blame safety culture at its heart. This means that: (learn)
those within the industry are encouraged to learn from events and near misses.
A key element that contributed to the onset of the 2008 financial crisis was:
weak regulation which allowed high risk activity to proceed unchecked.
From a risk management perspective, the COVID-19 pandemic has resulted in many businesses re-evaluating their:
emergency continuity plans.
Following the Grenfell Tower fire in 2017, Government reforms include:
making accountability of the risk more clear.
The key purpose of risk management standards such as COSO can BEST be described as to:
clarify business objectives, support decision making, and manage risks better.
One of the signs that risk management is embedded within an organisation is:
risk management issues will feature prominently in the annual report.
The MAIN purpose of the Public Interest Disclosure Act 1998 is to:
encourage individuals to report instances of wrongdoing within an organisation.
Measures that identify the probability of occurrence of incidents early enough to prevent them are known as:
key risk indicators.
Two MAIN business reasons for the collapse of Equitable Life were:
high guarantees on its pension products and overly generous payouts.
State the three areas of risk management that ISO 31000 addresses.
ISO 31000 is split into three risk management areas: principles, framework and process.
Financial institutions hold limited liquid funds compared with the value of assets they hold. Why was this such a critical factor in the viability of US investment banks during the financial crisis?
This is because in 2007 the five major US investment banks were operating with ratios around 40, i.e. for every £40 assets they held there was only £1 available to cover losses. Put another way, a 3% drop in asset values could wipe out the bank.
It is not unusual for several investigations into a major incident to be undertaken at the same time. Why is caution needed when examining their conclusions?
While on face value they may all be looking to uncover the cause(s) of an incident, they will not necessarily all share the same underlying objectives, reach the same conclusions or look at the same evidence. Findings of such enquiries need to be studied in the context of their terms of reference.
What is the essence of the AIRMIC, Alarm, IRM philosophy regarding risk management and organisation culture?
Risk management must be integrated into the culture of an organisation, with leadership from the board and a structured management framework to ensure appropriate procedures and practices are followed at all levels and in all operating units.
Why is the COSO internal control framework widely used in US organisations and their overseas branches?
The COSO internal control framework is used because compliance with it satisfies US legal requirements for financial reporting as set out in Sarbanes-Oxley corporate governance legislation.
What was the key decision that led to the demise of Equitable Life and why was it so important?
The ‘full distribution’ policy promoted by Ranson in 1983 was the key decision. By distributing all profits to policyholders there was nothing left to build up reserves.
What were the main aims of recommendations made after the BP Gulf disaster?
Most recommendations aimed to ensure future high-risk drilling operations were properly controlled and supervised by competent staff, trained to consider overall system implications of technical decisions, and with ability to correctly interpret the results of tests. The culture of participating organisations had to change from emphasis on production to emphasis on safety. Governance improvements required effective risk analysis and review of decisions before permits would be granted.
Why were pay structures criticized for contributing to the financial crisis by encouraging high-risk behavior?
Senior executives enjoyed multi-million pound or dollar salaries and generous bonus packages if targets were attained. Generally, targets were short term, tied to sales or asset quantity with no reference to ,quality or risk. There were no arrangements for clawing back bonuses if losses were incurred.
In investigations into the 2008 financial crisis, what general complaints were made concerning competency of executives, in both financial institutions and their regulators?
Many people did not understand the complexities and implications of the business they were in. Non-executive board members were not familiar enough with financial operations and not strong enough to rein in aggressive chief executives. Regulators found it difficult to criticize organisations reporting sound financial results.
