Risk Management

Question 1

the IMA’s goal of enterprise risk management is

Answer 1

to create, protect, and enhance shareholder value by managing the uncertainties that could either negatively or positively influence achievement of the organization’s objectives

Question 2

types of risk

Answer 2

-hazard: insurable risks
-financial
-operational: related to the enterprise’s ongoing, everyday operations
-strategic: global economic risk, political risk, regulatory risk, risks related to global market conditions
-business

Question 3

Key steps in risk management process

Answer 3

1. identify risks
2. assess risks
3. prioritize risks
4. formulate risk responses
5. monitor risk responses

Question 4

which two factors can help quantify risk

Answer 4

1. severity of consequences
2. likelihood of occurrence

Question 5

risk appetite

Answer 5

the degree of willingness of upper management to accept risk

Question 6

strategies for risk response

Answer 6

risk avoidance: ends the activity from which the risk arises
risk retention: acceptance of the risk of an activity
risk reduction: the act of lowering the level of risk associated with an activity
risk sharing: transfers loss potential to another party
risk exploitation: the deliberate courting of risk in order to pursue a high return on investment

Question 7

the frequency-severity matrix

Answer 7

Question 8

a risk response should be ignored if its costs exceed its benefits. True or false

Answer 8

True

Question 9

benefits of risk management

Answer 9

-efficient use of resources
-fewer surprises
-reassuring investors

Question 10

five categories of risk responses

Answer 10

1. acceptance (retention): self-insurance
2. avoidance: selling the risky activity
3. pursuit
4. reduction (mitigation): implementing internal controls
5. sharing (transfer): insurance, hedging, outsourcing, etc.