Chapter 4: Risk Connectivity and Risk Networks Flashcards
What is the main issue with traditional risk lists and risk registers?
They present risks as independent of each other.
How are risks interrelated according to the text?
Causes lead to risks and then to impacts; risks are interdependent.
What are the defined impacts of operational risks?
- Financial loss
- Reputation damage
- Compliance breach
- Customer detriment
- Disruption of services
What is a risk network?
A resource that highlights dependencies and connections between different risks.
Who is the best-known user of risk networks?
The World Economic Forum (WEF).
In a risk network representation, what do diamonds represent?
Individual risks.
What do the lines connecting diamonds in a risk network signify?
The strength and intensity of the connection between risks.
What is a risk cluster?
A group of risks that are linked to each other and should be considered holistically.
What is a trigger risk?
A risk that initiates a group of other subsequent risks.
Fill in the blank: Investment in risky financial assets is managed through _______.
[portfolios]
What is portfolio covariance?
The correlations between assets that determine risk and return.
Why is understanding interconnections between risks important for management?
It allows more efficient application of risk management resources and mitigation efforts.
What incident prompted a large mining company to move from a risk list to a connectivity view?
An incident that was far more damaging than anticipated due to a connected minor risk.
What was the consequence of not properly mitigating a supposedly small risk at the mining company?
It resulted in a cumulative impact that took everyone by surprise.
How can application obsolescence in HR departments affect a firm?
It increases vulnerability to cyberattacks.
What was the objective of the risk connectivity workshop with the bank’s board?
To organize risks in a cascade of causes and consequences.
What is the significance of representing risks in a cascade?
It helps to naturally order the priorities for mitigating and monitoring risks.
Which risk was identified as the most significant in the top operational risks for 2017?
Cyber risk.
Fill in the blank: Geopolitical risk possibly drives or exacerbates _______ other top risks.
[five]
What does the network representation of risks reveal about geopolitical risk?
It highlights the necessity for firms to watch their political and business environment.
How is the network of operational risks essentially split?
Into a geopolitical and organizational pole, and a regulatory pole.
What is the benefit of representing a risk register as a network?
It highlights connectivity and prioritizes mitigation effectively.
