SU1 - Introduction to Enterprise Risk Management

Question 1

Explain Risk Diversity.

Answer 1

As business grow, so does the range of risks they are exposed to. Thus, because of the risk diversity, risk management requires a broader approach.

Question 2

Why was the ERM ‘invented’?

Answer 2

Prior to ERM, risk management was carried out in ‘silo’ base approach. It was clearly inadequate and therefore the ERM discipline.

Question 3

What is the purpose of ERM?

Answer 3

It is about protecting and enhancing share value and wealth maximisation.

Question 4

Explain Business growth through risk taking.

Answer 4

Risk taking refers tot he tendency to engage in behaviours that have the potential to be harmful and dangerous, yet at the same time provide the opportunity for some kind of outcome that can be perceived as positive.

Taking and managing risk is the essence of business survival and growth.

Question 5

Explain the relationship between risk and opportunity.

Answer 5

Effective management of risks and opportunities help businesses achieve success despite difficult economic times.

Question 6

What are the benefits of effective risk and opportunity management?

Answer 6

1. Improved cost certainty
2. Higher economic returns
3. Sustainable shareholder value
4. Increased stakeholder confidence
5. Reduction of costly disputes and claims.

Question 7

Provide 6 out of the 14 benefits of ERM.

Answer 7

1. Increased likelihood of realising its objectives.
2. Align risk Appetite and Strategy.
3. Enhance corporate governance.
4. Identify and manage Cross Enterprise risk management.
5. Link growth, risk and return
6. Seize opportunities.

Question 8

Name the 7 elements of the ERM structure.

Answer 8

1. Corporate Governance
2. Internal control
3. Implementation
4. Risk management Framework
5. Risk Management policy
6. Risk Management process
7. Sources of Risk

Question 9

What is Corporate Governance?

Answer 9

It is the framework of rules and practices by which a Board of Directors ensures accountability in a Company’s relationship with all its Stakeholders.

Question 10

Risk Management Framework consists of 5 steps. Name them.

Answer 10

1. Mandate and commitment
2. Design Framework
3. Implement Framework
4. Monitor Framework
5. Improve Framework

Question 11

Risk Management Process can be broken into 7 stages. Name them.

Answer 11

1. Establish context
2. Risk identification
3. Risk Analysis
4. Risk Evaluation
5. Risk Treatment
6. Risk Monitoring and Review
7. Risk Communication

Question 12

Explain the 2 sources of Risk.

Answer 12

1. From within the business.

2. From the environment within which the business operates.