Chapter 1 Flashcards
Risk management makes those who own or run an organization more willing to undertake risky activities.
effects of risk management on individuals, organizations, and society in general
Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses.
expected cost of losses or gains
Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss is classified as
A strategic risk.
Risk management program goals are typically divided into pre-loss goals and post-loss goals. Pre-loss goals
Describe an organization’s need to meet responsibilities as an ongoing operation.
Buildings, investments, patents, and human resources are all examples of
Assets exposed to loss
Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility? New building cost $60.0 million Safety system upgrades $6.0 million Insurance premiums $1.5 million Retained losses $3.0 million Risk management department budget at the site $1.0 million
11.5 Million:
$6.0 million Insurance premiums $1.5 million Retained losses $3.0 million Risk management department budget at the site $1.0 million
Organizations find it difficult to establish a benchmark against which the performance of their risk management program can be assessed because it is difficult to assign a specific value to the
cost of residual uncertianty
The second step in the risk management process is analyzing loss exposures.
Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step.
Achieving any post-loss goal involves expending risk management resources, which may conflict with the pre-loss goal of
economy of operations
Residual Uncertianty
It is the level of risk that remains after implementing risk management plans.
Traditionally, the risk management professional’s role has been associated with loss exposures related to
Pure Risk
The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity.
Financial Consequence of Loss
Subjective risk can exist even where objective risk does not.
Subjective v objective risk
Residual uncertainty is the level of risk that remains after organizations implement their risk management plans
Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved.
Probabilities are stated as a decimal figure, a percentage, or a
fraction
