ARM 400 Chapter 3

Question 1

In risk management, what is a stakeholder?

Answer 1

Any individual or organization that is directly or indirectly involved with or affected by organizational decisions or activities.

Question 2

What are the 4 external environments that are primarily considered in risk management? (Hint - PSLE)

Answer 2

Physical environment
Social environment
Legal environment
Economic environment

Question 3

What defines a physical external environment concern?

Answer 3

The individual characteristics of locations of risks will vary depending on location and the environment it is located in. For example, hurricanes in Florida versus Tsunamis in California.

Question 4

How would you explain the social environment for external environment concerns?

Answer 4

A society’s cultural norms and values influence how people expect an organization to manage risks.

Question 5

Explain how legal environment affects the external environment for risk management.

Answer 5

Government regulations, statutes and case law can impose mandates that affect and dictate risk controls. This can vary according to county, state and country.

Question 6

How does the current economic environment affect the external environment in regard to risk control?

Answer 6

The macroeconomic influences on an organization are systemic and nondiversifiable. An organization must be aware of business cycles, employment conditions and levels of gross national output.

Question 7

A key element of an organization’s internal environment is_______________.

Answer 7

Risk tolerance and appetite of it’s decision makers.

Question 8

What is a risk center?

Answer 8

A discrete unit within an organization, having a leader and specific objectives, at which level a particular risk or group of risks is most appropriately managed.

Question 9

What is a risk owner?

Answer 9

An individual accountable for the identification, assessment, treatment and monitoring of risks in a specific environment.

Question 10

Are risk owners only part of the internal organization?

Answer 10

No, they can be external stakeholder such as suppliers, business partners, regulators and customers.

Question 11

Define what is meant by an organization’s culture.

Answer 11

It’s norms and attitudes and it is reflected in the written and unwritten rules, it’s formal code of conduct and the actual code of conduct as exhibited in daily decisions and behaviors.

Question 12

What are the 4 types of corporate culture? (Hint - HMCA)

Answer 12

Hierarchy
Market
Clan
Adhocracy

Question 13

How is hierarchy defined as far as types of corporate culture?

Answer 13

Decision making authority is well defined, rules and procedures are standardized.

Question 14

How is market defined as far as types of corporate culture?

Answer 14

The organization is more concerned with outward relationships; primary objectives are profitability, bottom line results, strength in market niches, stretch targets and secure market bases.

Question 15

How is clan defined as far as types of corporate culture?

Answer 15

The organization is seen as a family. Teamwork is emphasized and workers are encouraged to voice suggestions as to how to improve processes.

Question 16

How is adhocracy defined as far as types of corporate culture?

Answer 16

Adaptability is key; authority does not rest with one party but moves from individual to individual or team to team as needed.

Question 17

Insurance professionals generally encounter what 3 types of risk attitudes?

Answer 17

1. Risk seeking (risk naive) - these individuals/organizations believe that the result of the risk decisions, which are based on the short-term horizon, will allow the organization to reap significant benefits that make the risk worth it.
2. Risk avoiding (risk obsessed) - These individuals are focused on the negative side of potential risks. They seek methods of transferring potential risks to another entity to avoid it altogether.
3. Risk optimizing (risk managed) - Aggressive and conservative tendencies are balanced.

Question 18

An organization’s approach to risk should be a ________ between risk _______ and risk ________ on which the point of risk optimization is continually shifting.

Answer 18

dynamic continuum, avoiding, seeking

Question 19

One key aspect of being a good communicator is knowing what about their audience?

Answer 19

The audience’s level of understanding of the technical, legal or financial concepts to be discussed and then crafting the message to match.

Question 20

What are the 3 management styles that were discussed? (Hint - DDS)

Answer 20

Delegating
Directive
Supportive

Question 21

Describe the delegating style of management.

Answer 21

Management provides broad, strategic direction, but lets stakeholders create their own methods of attaining goals.

Question 22

Describe the directive style of management.

Answer 22

Managers make most decisions and tell others exactly what to do to achieve goals. Management limits the flow of information in interest of efficiency.

Question 23

Describe the supportive style of management.

Answer 23

Management explains the rationale for goals and decisions and encourages stakeholders to pursue related endeavors. Management is open to feedback from others, and stakeholders may establish their own communication networks.

Question 24

Define code of ethics.

Answer 24

The minimum standards of expected behavior for those to whom the code applies.

Question 25

How is social responsibility defined?

Answer 25

An organization’s responsibility to it’s stakeholders and society to consider the consequences of it’s actions on all stakeholders and to protect the welfare of society as a whole.