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Introduction to Risk Management Flashcards

1
Q

Define risk in general terms

A

The possible variation in an outcome from what is expected to happen

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2
Q

Define variation

A

Range of possible outcomes

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3
Q

Define expectation

A

What we expect to happen

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4
Q

Define outcomes

A

What actually does happen

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5
Q

Define risk according to COSO

A

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

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6
Q

Define opportunity according to COSO

A

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

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7
Q

Define uncertainty

A

The inability to predict outcomes because of a lack of information

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8
Q

What are the two types of non-business risk?

A
  1. Financial risk

2. Operational risk

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9
Q

Define strategy risk

A

Choosing and implementing the wrong corporate strategy

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10
Q

Define enterprise risk

A

Success or failure of a business operation

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11
Q

Define product risk

A

Customers do not buy the anticipated amount of product

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12
Q

Define economic risk

A

Unexpected changes in economic conditions

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13
Q

Define property risk

A

Losing property or losses arising from accidents

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14
Q

Define business risk

A

Risks that arise from the nature of the entity’s business, its industry, and the conditions it operates in

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15
Q

What are examples of business risk?

A

PEEPS

  1. Property risk
  2. Enterprise risk
  3. Economic risk
  4. Product risk
  5. Strategy risk
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16
Q

What are examples of controllable financial risks?

A
  1. Gearing risk
  2. Credit risk
  3. Liquidity risk
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17
Q

What is an example of uncontrollable financial risk?

A

Market risk

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18
Q

Define gearing risk

A

Increased interest charges due to high debt levels

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19
Q

Define credit risk

A

The economic loss suffered due to the default of a customer

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20
Q

Define liquidity risk

A

An unexpected shortage of cash

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21
Q

Define market risk

A

Exposure to changes in market prices or rates

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22
Q

What are examples of operational risk?

A
  1. Process risk
  2. People risk
  3. Systems/cyber risk
  4. Event risk
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23
Q

Define process risk

A

Company’s processes are ineffective or inefficient

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24
Q

Define people risk

A

Arising from staff constraints, incompetency, or dishonesty

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25
Define systems/cyber risk
The risk of financial loss, business disruption, or reputation damage that are a consequence of accidents and poor systems integrity
26
Define event risk
Loss due to single events that are unlikely but serious
27
What are examples of cyber risk?
1. Phishing 2. Webcam manager 3. File hijacker/ransomware 4. Keylogging
28
Define phishing
Bogus emails that ask for personal or security information
29
Define webcam manager
Where the user's webcam is taken over
30
Define file hijacker/ransomware
Where the user's files are hijacked and held to ransom
31
Define keylogging
Where criminals record what users type
32
What are examples of event risk?
1. Disaster risk 2. Regulatory risk 3. Reputation risk 4. Systemic risk
33
Define disaster risk
Catastrophe occurs such as a fire, flood, etc
34
Define regulatory risk
New laws or regulations are introduced
35
Define reputation risk
Risk of damage to the business's reputation
36
Define systemic risk
Failure by a participant in the business's supply chain
37
Define risk management
The identification, analysis, and economic control of risks that threaten the assets or earning capacity of a business
38
What are the stages of the risk management process?
1. Risk awareness and identification 2. Risk assessment and measurement 3. Risk response and control 4. Risk monitoring and reporting
39
Define risk identification
The identification of the whole range of possible risks and the likelihood of losses occurring as a result of these risks
40
What are examples of techniques to identify risk?
1. PEST analysis 2. SWOT analysis 3. External advisors 4. Interviews 5. Questionnaires 6. Internal audit 7. Brainstorming
41
What is the purpose of risk assessment?
To consider the nature of each risk and the implications it might have for the business achieving its objectives
42
What is the purpose of risk measurement?
1. To identify the probability of the risk occurring 2. To quantify the resultant impact 3. Calculates the amount of potential loss using expected values for gross risk
43
Define gross risk
The potential loss associated with the risk, calculated by combining the impact and probability of the risk before taking any control measures into account
44
What is the equation for calculating gross risk?
gross risk = probability x impact
45
Define probability
Measures likelihood
46
Define impact
Measures the size of the loss
47
Define exposure
A measure of the way in which a business is faced by risks
48
Define volatility
A measurement of the variability of a risk factor
49
What are the five different categories of loss?
1. Property loss 2. Liability loss 3. Personnel loss 4. Pecuniary loss 5. Interruption loss
50
What is a risk assessment map used for?
To assess each risk
51
What are the key responses to high likelihood, low impact risks?
1. Reduction | 2. Sharing
52
What are the key responses to high likelihood, high impact risks?
1. Avoidance 2. Reduction 3. Sharing
53
What is the key response to low likelihood, low impact risks?
Acceptance
54
What is the key response to low likelihood, high impact risk?
Reduction
55
Define risk-averse attitude
An investment would be chosen if it has more certainty but possibly a lower return than an alternative less certain, potentially higher return investment
56
Define risk-neutral attitude
An investment would be chosen according to its expected return, irrespective of the risk
57
Define risk seeker attitude
An investment would be chosen based on it offering higher levels of risk, even if its expected return is lower than an alternative no-risk investment with a higher expected return
58
Define crisis
An unexpected event that threatens the wellbeing of a business or a significant disruption to the business and its normal operations that impact on its customers, employees, investors, and other stakeholders
59
What are examples of crisis?
1. Natural event 2. Industrial accident 3. Product or service failure 4. Public relations disaster 5. Business crisis 6. Management crisis 7. Legal/regulatory crisis
60
Define crisis management
The identification of a crisis, planning a response to the crisis and confronting and resolving the crisis
61
What are the features of crisis management?
1. Contingency plans | 2. Crisis prevention
62
Define disaster
When the business's operations, or a significant part of them, break down for some reason leading to potential losses of equipment, data, or funds
63
What are the two types of disaster?
1. A major crisis causing a breakdown in operations and resultant losses 2. An event that results in serious consequences
64
What are the main components of a disaster recovery plan?
1. Define responsibilities 2. Prioritise actions 3. Establish back-up and standby arrangements 4. Communicate with staff 5. Establish PR 6. Risk assessment

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