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BTF > Introduction To Risk Management > Flashcards

Introduction To Risk Management Flashcards

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

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?

A

The probability of a certain value occurring

25
Q

Left skewed data

A

Aka negatively skewed
Concentrated on the right
Median and mean to left of mode

26
Q

Right skewed data

A

Aka positively skewed
Concentrated on the left

27
Q

4 stages of the risk management process

A

Awareness and identification
Assessment and measurement
Response and control
Monitoring and reporting

28
Q

Techniques to identify risks

A

PESTLE/SWOT
External advisors
Interviews/Questionnaires
Internal audit
Brainstorming

29
Q

5 types of loss

A

Property loss (assets)
Liability loss (legal)
Personell loss (injury, sickness, death)
Pecuniary loss
Interruption loss (inability to operate)

30
Q

Risk assessment

A

Nature and goal implications

31
Q

Risk measurement

A

Probability of risk, quantifies impact, calculates potential loss using expected values for gross risk

32
Q

Gross risk

A

Probability x impact

(and considering control measures)

33
Q

Risk assessment map

A

Matrix of impact and probability

34
Q

High impact low probability risk

A

Sharing
Reduction

35
Q

High impact high probability risk

A

Avoidance
Reduction
Share

36
Q

Low impact low probability risk

A

Accepted

37
Q

Low impact high probability risk

A

Reduction

38
Q

TARA model of risk responses

A

Transfer (sharing)
Avoidance
Reduction
Acceptance (retention)

39
Q

TARA model of risk responses: Transfer

A

Transfer risk to 3rd party
E.g. insurance, hedging

40
Q

TARA model of risk responses: Avoidance

A

Don’t do risky activities
But loose upside potential too

41
Q

TARA model of risk responses: Acceptance

A

Tolerate losses
Can be cheaper than insurance for small risks

42
Q

TARA model of risk responses: Reduction

A

Retain activity but reside risk
Mitigating controls:
Preventative
Corrective
Directive
Detective

43
Q

Benefits of risk monitoring

A

Current effectiveness
Change to risk profile

44
Q

What risks does the Corporate Governance Code require listed companies to report on?

A
  1. Nature and extent of risks willing to take to achieve objectives
  2. Management issues
45
Q

Corporate Governance Code: 4 additional board disclosures (risk reporting)

A
  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
Q

7 types of crisis

A

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
Q

2 things crisis management should consider

A

Contingency plans
Crisis prevention

48
Q

ICSA 2 axes of business resilience

A
  1. PROCESSES and functions to protect the organisation
  2. General ORGANISATIONAL characteristics driving resilience
49
Q

ICSA: Processes and functions to protect the organisation

A

Risk management
Business continuity planning
Security
IT disaster recovery
Health and safety
Crisis management
Internal audit
Governance

50
Q

ICSA: General organisational characteristics driving resilience

A

Employee trust in management
Customer trust in organisation
Ability to innovate
Clear values
Values liked to behaviour
Effective risk management
Morale
Leadership involvement

51
Q

2 types of business resilience changes

A

External (laws, recession)

Internal/panned (overseas investment, closure of significant operations, new strategic direction)

52
Q

ICSA 4 features of resilient organisations

A
  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
Q

Challenges to achieving resilience

A

Lack of expertise
Lack of input from leadership
Lack of cohesive thinking between departments

54
Q

ICSA 4 key metrics to measure resilience

A
  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
Q

Disaster definition

A

(Part of) OPERATIONS break down causing losses to equipment/data/funds

56
Q

Crisis definition

A

Unexpected event that threatens well-being/normal operations of business.
Affecting customers, employees, investors and other stakeholders.

57
Q

6 components of disaster recovery plan

A

{Disaster recovery CREEP}

Define responsibilities

Communicate with staff
Risk assessment
Establish back-ups and standbys
Establish PR
Prioritise actions

BTF (14 decks)

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