Risk Flashcards
What functions do risk committees provide to the board?
> Recommendation of risk management strategy
Reviewing reports on key risks
Advising the board on risk appetite and risk tolerance when setting future strategies
Informing shareholders and stakeholders on any significant changes to company’s risk profile
Advantage of risk committees
> Formalise business practices - ensuring risk is high on company’s agenda
Focus attention
Reduce control breaches
Improve communication
What is a risk manager?
Supports the board by taking the lead on risk and develops policies for managing risks.
Roles:
> establishing a risk management framework
> training managers/staff on risk to align risk responses with the entities risk tolerances
> dealing with insurance companies
> risk reporting
What is risk appetite?
The nature of risks that an organisation is prepared to bear
What is risk attitude?
The directors views on the level of risk that they consider desirable
What is risk averse?
Accepting risks up to a certain point, as long as they have an acceptable return
What is a risk seeker?
Highest return regardless of risk
What is risk capacity?
Nature of risks that an organisation can bear
What is a strategic risk?
Long term
> changes in technology
> market changes
> competitor issues
What is operational risk?
Day to day
> human error
> fraud
What is TARA?
Use TARA when considering response to risk
Transfer - low likelihood and high impact
Avoid - high likelihood and high impact
Reduce - high likelihood and low impact
Accept - low likelihood and low impact
What is ALARP?
A response to risk by balancing cost and benefit
“As Low As Reasonably Possible”
What is a correlated risk?
Two risks that vary together.
Both Positive = Risks will increase or decrease together
Both Negative = 1 risk increase while other risk decrease
What are related risks?
Risks that are connected because the causes of the risk are the same
What is diversification?
Offsetting risks that are negatively correlated to balance their impact
