ARM 400 Chapter 1 Flashcards
What is big data?
Large sets of data that are too large to be gathered and analyzed by traditional methods.
What is a smart product?
An item that uses sensors, wireless sensor networks for data collection , transmission and analysis to further enable the item to be faster, more useful or otherwise improved.
What is the Internet of Things (IoT)?
A network of objects that transmit data to and from each other without human interaction.
What is cloud computing?
Information, technology and storage services contractually provided from remote locations through the internet or another network without a direct server connection.
Define the sharing medium called blockchain?
It is a distributed digital ledger that facilitates secure transactions without the need for a third party. It is typically independently verified and is therefore a trusted source.
It is a collectively shared ledger that is continuously growing list of records called blocks, in chronological order
What is the process called that confirms new blocks and the data within called?
Mining, which allows verification without an intermediary and establishes trust without a centralized authority.
How is text mining used?
To compare documents and analyze notes for various purposes.
How is risk appetite defined?
It is the amount of risk an organization is willing to take on in order to achieve an anticipated result.
What is value at risk (VaR)?
A technique to quantify financial risk by measuring the likelihood losing more than a specific dollar amount.
How is a hazard risk defined and how is it managed?
A risk that could destroy an organization’s facilities, injure employees or customers. Risk managers use loss control and risk transfer to manage these risks.
What are two ways a holistic risk management strategy empowers organizations to improve their capital allocation?
- Reducing the cost of risk, freeing up capital for other purposes.
- By improving risk analysis for various strategic options so that capital is allocated where it is most likely to produce the best reward for the risk.
How is cost of risk defined?
The total cost incurred by an organization because of the possibility of accidental loss.
The cost of risk that is associated with a particular asset or activity is the total of what costs?
- Cost of accidental losses that are not reimbursed.
- Insurance premiums and expenses.
- Cost of risk control techniques to prevent or mitigate losses.
- Costs of administering risk management activities.
Risk management supports _______ while ______ its cost.
safety, minimizing
What are the basic risk measures? Hint - EVLCTC
Exposure
Volatility
Likelihood
Consequences
Time horizon
Correlation
Define exposure as it relates to basic risk measures.
Any condition that presents a possibility of a gain or a loss, whether or not it occurs.
Define volatility as it relates to basic risk measures.
Frequent fluctuations, such as in the price of an asset.
Define consequences as it relates to basic risk measures.
The effects, positive or negative, of an occurrence.
Define likelihood as it relates to basic risk measures.
A qualitative estimate of the certainty with which the outcome of a certain event can be predicted.
Define time horizon as it relates to basic risk measures.
Estimated duration
Define correlation as it relates to basic risk measures.
A relationship between variables
In regards to the term likelihood used in relation to basic risk measures, why is that term used instead of probability?
Because probability analysis relies on the law of large numbers, which basically means that the larger the sample size, the more representative the probability of occurrence is of the whole. Most organizations need to determine these things without the benefit of large numbers.
___________ time horizons are generally _______ than ______ ones.
longer, riskier, shorter
What are the 4 classifications of risk that are most commonly used? ( Hint - P/S, S/O, D/UD, QoR)
- Pure and speculative risk
- Subjective and objective risk
- Diversifiable and nondiversifiable risk
- Quadrants of risk. (Hazard, operational, Financial, strategic)
How is pure risk defined?
It is a chance of loss or no loss.
Why are pure risks always considered undesirable?
Because there is no opportunity for financial gain.
How is speculative risk defined?
A risk that involves a chance of gain.
Speculative risk is highly affected by what factors?
- Price risk - uncertainty about cash flows resulting from possible changes in the cost of raw materials and other inputs as well as cost-related changes in the market for completed products and other outputs.
- Credit risk - is particularly significant for banks and financial institutions but can be significant for any business that has accounts receivable.
Insurance risks are generally classified as ____, ______. and ___________.
pure, objective and diversifiable.
Insurance deals primarily with risks of _____, not risks of_____.
loss, gain
What is subjective risk?
The PERCEIVED amount of risk based on an individual’s or organizations OPINION.
What is objective risk?
The MEASURABLE variation in uncertain outcomes based on facts and data.
How do subjective and objective risk tend to differ?
- Familiarity and control - the opinion and feelings about a particular risk may not be supported by facts about the risk.
- Consequences over likelihood - Higher risk events are perceived by people to be less likely to occur and the low risk events are seen as being less likely to occur.
- Risk awareness - How aware an organization is about the likelihood of a risk to occur affects it’s awareness of it happening
Diversiviable risk is defined as?
A risk that affects only some individuals, businesses and or small groups. It is not highly correlated, and gains or losses tend to occur randomly.
What is the best way to manage diversifiable risk?
Through diversification - the spreading out of risk.
What are some examples of diversifiable risks?
Fire which is likely to only affect one or a small number of businesses. Investments.
What are some examples of nondiversifiable risks?
Inflation, unemployment, natural disasters. Nondiversifiable risks are correlated, meaning that they can affect multiple businesses at the same time.
What are systemic risks?
These are defined as the potential for a major disruption in in the function of an entire market or financial system.
How is hazard risk defined?
Risks that arise from property, liability or personnel loss exposures and are generally the subject of insurance.
What is operational risk?
Risks that fall outside the hazard risk category and arise from people or a failure in processes, systems, or controls, including information technology.
What do financial risks arise from?
The effect of market forces on financial assets or liabilities and include market risk, credit risk, liquidity risk and price risk.
Where do strategic risks arise from?
Trends in the economy and society, including changes in the economic, political and competitive environments as well as from demographic shifts.
Hazard and operational risks are classified as____ risks.
Pure risks
Financial and strategic risks are classified as ____ risks.
Speculative risks
What are the components for the process of the risk management framework cycle? (Hint - SIATM)
Scan the environment
Identify risks
Analyze risks
Treat risks
Monitor and review
What is the risk management framework?
A foundation for applying the risk management process throughout the organization.
What is risk criteria?
Information used as a basis for measuring the significance of a risk.
Risk criteria should be aligned with the organization’s objectives, resources, risk management policy and should consider which factors? (Hint - CEMTMA)
Causes
Effects
Metrics used to measure effects of risk
Timeframe of potential risk
Methods to determine level of risk
Approach to combinations of risk.
What are the key purposes of monitoring risk?
- Determine the effectiveness of controls.
- Obtain information to improve risk assessment.
- Analyze events and their consequences to understand trends, successes and failures.
- Observe changes in internal and external environments.
- Identify emerging risks.
