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Introduction To Risk Management Flashcards

(57 cards)

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1
Q

Risk definition

A

The possible variation of an outcome from what is expected

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2
Q

COSO Definition of risk

A

The possibility that an event will occur and adversely affect the achievement of objectives

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3
Q

COSO definition of opportunity

A

The possibility that an event will occur and positively affect the achievement of objectives

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4
Q

Uncertainty definition

A

Inability to predict due to lack of information

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5
Q

3 attitudes to risk

A

Risk averse
Risk neutral
Risk seeker

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6
Q

Risk averse attitude

A

More certainty less reward

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7
Q

Risk neutral attitude

A

Investment chosen based on return

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8
Q

Risk seeker attitude

A

Chosen due to high risk even if return lower

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9
Q

Three types of risk

A

{Bof}

Business risk
Operational risk
Financial risk

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10
Q

5 types of business risk

A

{Pepe’s}

Product
Economic
Property
Enterprise
Strategy

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11
Q

2 types of financial risk

A

Controllable
Uncontrollable

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12
Q

5 types of operational risk

A

{Pecs}

Process
People
Event
Cyber
Systems

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13
Q

4 types of event risk

A

{DRReSs well for the event}

Disaster
Regulatory
Reputation
Systemic (participant in business’ supply chain)

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14
Q

4 terms in measuring risk

A

Probability
Impact
Exposure
Volatility

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15
Q

Measures of central tendency

A

Mean
Median
Mode
Expected value

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16
Q

Measures of dispersion/spread

A

Range
Deviation
Variance
Standard deviation
Coefficient of variation

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17
Q

Deviation

A

How far away from the mean

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18
Q

Variance =

A

The average of all squared deviations

Σ(x-Av)^2/n

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19
Q

Standard deviation

A

Square root of the variance

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20
Q

Coefficient of variation

A

Standard deviation divided by the mean

Useful to compare variations across different means (often %)

Lower = better return to risk

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21
Q

Frequency distributon

A

Based on sets of values e.g. 10-20, 21-30…
Often shows normal distribution

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22
Q

Normal distribution

A

Bell curve
Mean in centre
Mean median and mode the same
Area under curve = 1

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23
Q

Normal distribution standard deviations

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A

34% values mean-1 (68% -1-1)
47.5% values mean-2
49.9% values mean-3

24
Q

For a normal distribution, what can we work out if we know the mean and standard deviation?

Study These Flashcards
A

The probability of a certain value occurring

25
Left skewed data
Aka negatively skewed Concentrated on the right Median and mean to left of mode
26
Right skewed data
Aka positively skewed Concentrated on the left
27
4 stages of the risk management process
Awareness and identification Assessment and measurement Response and control Monitoring and reporting
28
Techniques to identify risks
PESTLE/SWOT External advisors Interviews/Questionnaires Internal audit Brainstorming
29
5 types of loss
Property loss (assets) Liability loss (legal) Personell loss (injury, sickness, death) Pecuniary loss Interruption loss (inability to operate)
30
Risk assessment
Nature and goal implications
31
Risk measurement
Probability of risk, quantifies impact, calculates potential loss using expected values for gross risk
32
Gross risk
Probability x impact (and considering control measures)
33
Risk assessment map
Matrix of impact and probability
34
High impact low probability risk
Sharing Reduction
35
High impact high probability risk
Avoidance Reduction Share
36
Low impact low probability risk
Accepted
37
Low impact high probability risk
Reduction
38
TARA model of risk responses
Transfer (sharing) Avoidance Reduction Acceptance (retention)
39
TARA model of risk responses: Transfer
Transfer risk to 3rd party E.g. insurance, hedging
40
TARA model of risk responses: Avoidance
Don’t do risky activities But loose upside potential too
41
TARA model of risk responses: Acceptance
Tolerate losses Can be cheaper than insurance for small risks
42
TARA model of risk responses: Reduction
Retain activity but reside risk Mitigating controls: Preventative Corrective Directive Detective
43
Benefits of risk monitoring
Current effectiveness Change to risk profile
44
What risks does the Corporate Governance Code require listed companies to report on?
1. Nature and extent of risks willing to take to achieve objectives 2. Management issues
45
Corporate Governance Code: 4 additional board disclosures (risk reporting)
1. Responsible for internal control systems 2. Systems designed to manage not eliminate risk 3. How dealt with internal control aspects of significant problems highlighted in accounts 4. Weaknesses of internal control that have resulted in material losses
46
7 types of crisis
Natural event Industrial accident (e.g. fire, collapse) Product/service failure PR disaster Business crisis (e.g. loss of key supplier/customer) Management crisis (e.g. hostile takeover bid/loss of key management) Legal/regulatory crisis
47
2 things crisis management should consider
Contingency plans Crisis prevention
48
ICSA 2 axes of business resilience
1. PROCESSES and functions to protect the organisation 2. General ORGANISATIONAL characteristics driving resilience
49
ICSA: Processes and functions to protect the organisation
Risk management Business continuity planning Security IT disaster recovery Health and safety Crisis management Internal audit Governance
50
ICSA: General organisational characteristics driving resilience
Employee trust in management Customer trust in organisation Ability to innovate Clear values Values liked to behaviour Effective risk management Morale Leadership involvement
51
2 types of business resilience changes
External (laws, recession) Internal/panned (overseas investment, closure of significant operations, new strategic direction)
52
ICSA 4 features of resilient organisations
1. Diversified RESOURCES 2. Strong internal and external RELATIONSHIP network 3. Rapid and decisive RESPONSE to emerging crisis 4. Self-REVIEW and adaption to meet changing circumstances
53
Challenges to achieving resilience
Lack of expertise Lack of input from leadership Lack of cohesive thinking between departments
54
ICSA 4 key metrics to measure resilience
1. Compliance (internal) 2. Completeness (breadth of readiness, multiple issues concurrently!) 3. Comparability/capability (testing+reviewing responses to potential shocks) 4. Value (hitting goals quantitative+qualitative)
55
Disaster definition
(Part of) OPERATIONS break down causing losses to equipment/data/funds
56
Crisis definition
Unexpected event that threatens well-being/normal operations of business. Affecting customers, employees, investors and other stakeholders.
57
6 components of disaster recovery plan
{Disaster recovery CREEP} Define responsibilities Communicate with staff Risk assessment Establish back-ups and standbys Establish PR Prioritise actions

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