Chapter 2 - Risk management

Question 1

What is risk management

Answer 1

The identification, forecasting and evaluation of sources of risk; the necessary action to eliminate or minimize their impact

Question 2

List the stages of risk management

Answer 2

1. Planning
2. Identification
3. Qualitative analysis
4. Quantitative analysis
5. Risk response planning
6. Monitoring and controlling

Question 3

What does the planning stage of risk management entail

Answer 3

1. setting the scope and detailing management activities to be undertaken
2. Developing the policies and procedures for managing risk
3. Defining the risk tolerance for various risks (what the organization is able and willing to bear)

Question 4

What is identification in risk management

Answer 4

1. Identifying the risk facing organization
2. Defining main risks and their characteristics in terms of whether they are threats or opportunities
3. Analyse exposure to risks and to prioritize - subject to analysis, additional action or contingency plan
4. Group risks as financial or non-financial risk

Question 5

What is qualitative risk

Answer 5

Process:
assessing each individual risk probability of occurrence and their impact against a predefined scale

Purpose: to

1. Prioritize risk
2. improve risk understanding
3. identify main exposure areas

Question 6

What is quantitative risk

Answer 6

Numeric analysis of the level of risk and their impact on an organization

Question 7

What is risk response planning

Answer 7

1. creating actions and options to increase opportunity and reduce risk

Question 8

When is risk adjusted?

Answer 8

1. Upward when the organization has an advantage

2. Downward when the organization is faced with risk

Question 9

Outline how risk adjustment is done

Answer 9

1. Using derivatives and other instruments to change the level of risk
2. Identify the most appropriate transactions for any given objective
3. Considering the cost of any transaction
4. Executing each transaction

Question 10

List the key steps in monitoring and controlling

Answer 10

1. Implementing a response plan
2. Tracking and monitoring identified risks
3. Identifying and responding to new risks
4. Improving risks management process

Question 11

What is risk governance

Answer 11

The use of good governance principles for the:

1. identification
2. assessment
3. management
4. communication of risk

Formal structure for risk-based decision making and oversight across all operations of the organization

Question 12

What the two types of risk management

Answer 12

1. Enterprise (centralized) risk

2. Decentralized risk

Question 13

What is enterprise risk management

Answer 13

responsibility of execution is placed within one unit of the organization

Question 14

What is decentralized risk management

Answer 14

The responsibility of execution is placed within the units where the work is being done

Question 15

What are the advantages of enterprise risk management

Answer 15

1. Provides a better view of how each unit’s risk affects the overall risk borne by the organization
2. locates the responsibility closer to management who bear ultimate obligation