Risk Management

Question 1

Risk

Answer 1

Situation in which the probability of a particular outcome is known.

Question 2

Uncertainty

Answer 2

Situation in which the probability is not known (this means that the outcome is not necessarily bad.

Question 3

Disruption Risk

Answer 3

Natural or Man made risk e.g. flood, economic crisis

Question 4

Operational Risk

Answer 4

Risk that is involved in the ordinary course of business e.g. plant machinery breakdowns

Question 5

External Risk Drivers

Answer 5

Globalisation (may influence market share)
Technology (new technologies render the current ones obsolete)
Market Change (life styles, customer demands and preferences)
Regulation (new laws, rules and regulations)

Question 6

Internal Risk Drivers

Answer 6

Human Factor (employee strike, ineffective, incompetent management, dishonesty)

Question 7

Approaches to Risk

Answer 7

Risk Avoidance
Risk Reduction
Risk Sharing
Risk Acceptance

Question 8

COSO (2004)

Answer 8

Enterprise Risk Management 
Internal Environment 
Objective setting 
Event identification 
Risk Assessment
Risk Response Control Activities
Information and Communication 
Monitoring

Question 9

ERM helps entities achieve their objectives by

Answer 9

1) Aligning risk appetite and strategy
2) Enhancing risk response decisions
3) Reducing operational surprises and losses
4) identifying and managing multiple and cross-enterprise risks
5) Seizing opportunities
6) Improving deployment of capital

Question 10

Acceptable level of Risk (Lefley 1997)

Answer 10

1) The subjective attitude of the decision maker (risk averse vs. risk taker)
2) The decision maker past experience.
3) The decision makers age
4) The size of the firm
5) Personal vs. group made decisions (taking decision by a group managers will spread the exposure to the perceived risk by and individual member of the group.
6) Cultural factors (Japanese work as a group and are prepared to invest in more risk projects)