Chapter 11 Risk Management

Question 1

The process of measuring or assessing risk and developing strategies to management.

Answer 1

Risk Management

Question 2

Define (ISO)

Answer 2

International Organization of Standardization

Question 3

Things that risk management should do

Answer 3

1. Create Value
2. Address uncertainty and assumptions
3. Be an integral part of the organizational processes and decision making
4. Be dynamic, iterative, transparent, tailor able, and responsive to change
5. Create capability of continual improvement and enhancement considering the best available
   Information and human factors
6. Be systematic, structured and continually or periodically reassessed

Question 4

The process of risk management consists of several steps

Answer 4

1. Establishing the Context
2. Identification of potential risk
3. Risk assessment

Question 5

Establishing the context involve

Answer 5

a. Identification of risk in a selected domain or interest
b. Planning the remainder of the process
c. Mapping
d. Defining a framework for the activity and an agenda for identification
e. Developing a. Analysis of risks involved in the process
f. Mitigation or solution of risks using available technological, human and organizational resources

Question 6

Mapping out the following

Answer 6

1. The social scope of risk management
2. The identity and objectives of stakeholders
3. The basis upon which risks will be evaluated, constraints

Question 7

Can start with the analysis of the source of problems or with the analysis of the problem

Answer 7

Identification of potential risks

Question 8

Common risk identification methods are

Answer 8

A. Objective based risk
B. Scenario based risk
C. Taxonomy based risk
D. Common risk checking
E. Risk charting

Question 9

Once risks have been identified their potential severity of impact and the probability of occurrence must be assessed

Answer 9

Risk Assessment

Question 10

The Factors usually considered with respect to investments are.

Answer 10

1. Business Risk
2. Financial Risk
3. Liquidity Risk
4. Default Risk
5. Interest Rate Risk

Question 11

Refers to the uncertainty about the rate of return caused by the nature of the business.

Answer 11

Business Risk

Question 12

Related to the probability, that some or all of the initial investment will not be returned.

Answer 12

Default Risk

Question 13

The firm’s capital structure or sources of financing determine

Answer 13

Financial Risk

Question 14

Most commonly associated with bond price movements, rising interest rates cause bond prices to decline and declining interest rate cause bond prices to rise.

Answer 14

Interest Rate Risk

Question 15

Is associated with the uncertainty created by the inability to sell the investment quickly for cash.

Answer 15

Liquidity Risk

Question 16

Decisions made by a firm’s management and board of directors materially affected the risk faced investors.

Answer 16

Management Risk

Question 17

It is easy to observe the decline in the price of a stock or bond, but it is often more difficult to recognize that the purchasing power of the return you have earn on an investment has declined (risen) as a result of inflation (deflation).

Answer 17

Purchasing Power Risk

Question 18

Risk associated with manufacturing, trading and service concerns

Answer 18

A. Market Risk
B. Operations Risk
C. Financial Risk
D. Business Risk

Question 19

Under Market Risk

Answer 19

A. Production Risk
B. Competitor Risk

Question 20

Under Operations Risk

Answer 20

A. process stoppage
B. Health and safety
C. After sales service failure
D. Environmental
E. Technological Obsolescence
F. Integrity

Question 21

Under Financial Risk

Answer 21

A. Interest rate volatility
B. Foreign currency
C. Liquidity
D. Derivative
E. Viability

Question 22

Under Business Risk

Answer 22

A. Regulatory Change
B. Reputation
C. Political
D. Regulatory and legal
E. Shareholder relations
F. Credit rating
G. Capital availability
H. Business interruptions

Question 24

This includes performing an activity that could carry risk

Answer 24

Risk Avoidance

Question 25

Involves reducing the severity of the loss or the likelihood of the loss from occurring

Answer 25

Risk Reduction

Question 26

Means sharing with another party the burden of loss or the benefit of gain, from a risk, and the measures to reduce a risk

Answer 26

Risk sharing

Question 27

Involves accepting the loss or benefit of gain from a risk when it occurs

Answer 27

Risk retention

Question 28

Is the technique for measuring, monitoring and controlling the financial or operational risk on a firm’s balance sheet

Answer 28

Risk management

Question 29

The most commonly encountered areas of risk management include

Answer 29

1. Enterprise risk management
2. Risk management activities as applied to project management
3. Risk management for megaprojects
4. Risk management of information technology
5. Risk management techniques in petroleum and natural gas