Chapter 8: ERM processes and structures

Question 1

The components of a corporate strategy PASTAL DOC

Answer 1

• Product choice – design and pricing
• Asset management
• Sales growth
• Target markets
• Acquisitions strategy
• Lines of business
• Distribution techniques
• Objective setting
• Cost management

Question 2

How risk appetite and strategy influence corporate strategy GROAT

Answer 2

• Gearing and borrowing ratio levels set
• Retention decision – choose risks to embrace and mitigate
• Organization and prioritizing risks
• Allocation of capital decision
• Transfer and hedging strategies – degree and type

Question 3

Management decisions likely taken when in financial distress SLITS EQ

Answer 3

• Safety of work environment and services
• Liquidation working operations
• Investment spending in long term assets reduced
• Tax benefits loss
• Share price affected
• Exiting promising lines of business
• Quality of production

Question 4

More effective risk management strategies DOMES

Answer 4

• Diversification
o Resources
o Locations
o Skill
o Channels
• Outsourcing of services
• Multi-disciplined operational teams
• Early warning triggers and horizon scanning
• Structural changes made to ensure robustness and flexibility

Question 5

Risk management control cycle IAMMM DRAGS QAMI TARA

Answer 5

• Identification – consistent
o Definition is consistent
o Recording
o All risks considered
o Grouping of risks
o Sources of risk should be understood
• Assessment – quantify risks in terms of risk appetite (risk measures and limits set out):
o Quantify
o Aggregate risks
o Measurement of risk
o Interdependencies of risk
• Management (Response) – ORM
• Monitoring – Record, review and report on risk
o All aspects of ERM process
o Recording of losses arising from risks
o Trigger points reviewed
o Audit
• Modification – pivot when needed
o Reporting of risks, losses, treatments

Question 6

Key groups in risk management decision making LAMB

Answer 6

• Line management (1st line of defence)
o Daily management of business units
o Alignment with appetite
o Tactical monitoring and management
• Audit
• Management functions, CRO and compliance function (2nd line of defence)
o ROTIC RIFS/CLAP TDS/DIME PROMO TECCS
• Board of directors (3rd line of defence)
o SMIRCC/CADAC SMOCAR