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I11 - Intro to Risk Management > Chapter 5 - Risk Assessment > Flashcards

Chapter 5 - Risk Assessment Flashcards

1
Q

What is a risk assessment?

A

Risk identification + analysis + evaluation

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2
Q

What is the first step in the risk management process?

A

Finding and assembling the risks and threats to the organisation (building a risk register) e.g. risks to day to day operations such as sourcing of materials or things which THREATEN THE OBJECTIVES OF THE ORGANISATION

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3
Q

Why do we need risk information?

A

More you know about the risks faced the greater the chance of making the right strategic decisions to meet objectives

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4
Q

What is ‘trusted & relevant’ information?

A

= ‘informed’ view of the risks that threaten an organisation: its people, objectives, success or existence so the information is any information that may influence a decision about a riskW

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5
Q

What are the different classifications of information?

A
  • Qualitative - description or written
  • Quantitative - measured or counted
  • Subjective - judgment based
  • Objective - factual
  • Static - Fixed data which is not altered e.g. DOB
  • Dynamic - capable of changes
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6
Q

Is one type of risk information better than another?

A

No, generally a variety of different types is the best so can see all angles

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7
Q

How has technology influenced risk information?

A

New technologies and ‘big data’ give us more information, so useful for risk information e.g health insurers with monitoring equipment, social media for claims & artificial intelligence

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8
Q

What are the two umbrella terms of risk identification techniques?

A

Internal & External

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9
Q

What are some examples of internal risk identification?

A
  • Talking to people in the organisation
  • Workshops & brainstorming (debating and challenging good to see the human part)
  • Meetings & committees
  • Questionnaires
  • Procedure manuals
  • INTERNAL AUDIT & COMPLIANCE MONITORING
  • Surveys and observation
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10
Q

What are some examples of external risk identification?

A
  • Stress testing & scenario analysis - running through plausible scenarios and what would happen in different outcomes
  • External auditors’ reports e.g. external accountants
  • Reading insurance documents (great for assessing risk & gathering information)
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11
Q

What is a key point to remember in risk identification?

A

ONGOING PROCESS - NEVER STOPS

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12
Q

What can the routine collection of risk information be assisted by?

A

Electronic information systems - collate large data sets and continuously record information - also more reliable as no human bias

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13
Q

Some risks are more obscure than others and hide in the complex businesses, what are some techniques to break down complexity to identify risks?

A
  • Workshops & brainstorming -> collecting and sharing ideas
  • Business process analysis -> teams asks the ‘what if’ questions
  • Inspections & audits
  • Flows, processes & dependency charts
  • ‘Fault trees’ & ‘root cause analysis’
  • Organisation charts -> helps to breakdown structure and activities in a clear manner
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14
Q

When describing and recording risks, what is a useful aid in the risk assessment?

A

Using risk classifications to reduce complexity and make comparisons easier - benefits publications to investors, directors & public

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15
Q

What are two examples of using risk classifications to aid in risk assessment?

A
  1. The FIRM scorecard - Financial risks, Infrastructure risks, Reputational risk and Marketplace risk - noting which risks are internally/externally driven.
    Benefit = helps to view wider and different viewpoints when identifying the risks an organisation faces
  2. Local Authority Risk Register - UK Local Authorities often classify risks in a way which match their operational & legal structure
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16
Q

What is the prime use of historical data analysis in risk management?

A

Used to determine expected values or ranges of value for particular ongoing risks

17
Q

What does risk analysis attempt to measure?

A

Frequency & Severity

18
Q

How are numbers used to express judgement of frequency?

A

Used as codes to give consistency and common format e.g. 1 to 5 with 1 being lowest and 5 the most
BUT, can reduce accuracy by grouping

19
Q

Why is it sometimes difficult to consider severity?

A

Some damages e.g. physical assets can be quantified but others e.g. injury or loss of reputation present difficulty in attaching monetary value

20
Q

What options are available when cannot measure severity in financial terms?

A
  1. RAG Rating (Red, Amber & Green) - Easily understand but broad categories
  2. Using numbers to express judgement of severity - e.g.
    Level 1 - Negligible
    Level 3 - Moderate
    Level 5 - Extreme
    and this can accommodate both FINANCIAL & NON-FINANCIAL risk estimates
21
Q

Explain an important feature when making a risk assessment?

A

Should it be assessed at the INHERENT level (assuming controls fail to work) or RESIDUAL level (with controls & precautions in place)

22
Q

What is the purpose/what does a risk map/matrix show?

A

Combines the results of measurements of frequency and severity into a table with frequency on x and severity on y

23
Q

Apart from a risk matrix/map, what is another form used to create pictures on different types of risk and their possible effects?

A

Models made using mathematics

24
Q

How can risk evaluation be described?

A

Taking the results of risk analysis and relating them to context in which the organisation’s operate e.g. country, environment, location or operational limits and ability to cover financial loss

25
Q

For both individuals and organisations, what is appetite for risk moderated by?

A

The ability to tolerate types of loss or levels of the loss

25
Q

What are the 3 main different types of criteria which influence risk appetite and tolerance when evaluating a risk assessment

A
  1. Financial criteria – e.g. cash reserves and ability to raise loans will impose a sensible limit on risk appetite
  2. Legal criteria – laws and regulations e.g. threat of large fines
  3. Operational criteria -
26
Q

Risk information has to be recorded & stored in a logical, easily accessible and understandable form – how is this normally done?

A

Building data into a useful database – called a RISK REGISTER

27
Q

What is the aim of a risk register & why is it important?

A

Aim is build complete picture of profile of risk in an organisation

Establishes criteria to help make decisions & choose appropriate methods of risk control

28
Q

What are essential components of a risk register’s design?

A

Risk description, frequency, severity, existing controls, ranking & priorities and even recommendations for new or improved risk controls

29
Q

How and why are risk-registers often web-based systems?

A

Makes it easier for access and to be consistently updated with new risks, reviews, reporting assessing and classifying = more option to contribute

30
Q

What may an extended risk register system also include?

A

Data concerning risk financing and continuity planning and facilities to test the different scenarios

31
Q

What 4 factors are often used for evaluation in a risk regiter?

A
  1. Operational
  2. Financia
  3. Legal
  4. Moral
32
Q

What are the main evaluation criteria for risk?

A
  1. Risk appetite & tolerance (financial, legal, operational)
  2. Presenting the risk assessment in a register
  3. The risk ‘owner’ – who takes responsibility of the risk
  4. The importance of regular review – ongoing process and testing controls
  5. Warning – using it

I11 - Intro to Risk Management (7 decks)

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