The Meaning of Risk

Question 1

What does RM depend on?

Answer 1

• Identifying risks involved in an organisation
• Estimating how often those risks likely to materialise
• Measuring potential consequences
• Exploring options available to exercise control

Question 2

What must the RM framework be?

Answer 2

• organisation wide
• integral part of the organisation
• organised to allow audit and cont. change

Question 3

When did the concept of measuring risks date?

Answer 3

17th Century; Fermat and Pascal

Question 4

What is the BASEL I accord?

Answer 4

System to regulate banks by controlling their capital reserves.

Upgraded to BASEL II/III with introduction of more capital calculation rules and capital controls

Question 5

What is the Sarbanes - Oxley Act 2002?

Answer 5

USA; governance and financial reporting regulations imposed on all companies on NYSE

Question 6

List the 9 behaviours that influence risk perception

Answer 6

1. Voluntariness
2. Controllability
3. Delay
4. Man made and natural risks
5. Familiarity
6. Expected Benefits
7. Media
8. Dread and unknown risks
9. Other influences on risk perception

Question 7

What is voluntariness?

Answer 7

If we choose a risk voluntarily, our risk perception is reduced

Question 8

What is controllability?

Answer 8

People are more willing to accept risks they think they can control

Question 9

What is delay?

Answer 9

If the effect of a risk is far into the future, more likely to accept the risk now

Question 10

What are man-made and natural risks?

Answer 10

Natural risks more accepted than man made. This is due to control

Question 11

What are expected benefits?

Answer 11

Influence view of risk, more prepared to accept risk where benefits can be justly shared

Question 12

Does the Media affect our perception of risk?

Answer 12

Yes

Question 13

What is a dread risk?

Answer 13

Risks people feel like they have little control and which have dreadful consequences i.e. Nuclear accidents

Question 14

What is an unknown risk?

Answer 14

Risks which people have limited knowledge about i.e. solar flares or nanotech.

Question 15

Are risks in the high dread/low unknown area attract little attention?

Answer 15

Yes, and therefore are underestimated

Question 16

What other factors influence risk perception?

Answer 16

Religious beliefs

Lifestyle and economic concerns

Question 17

What are the components of Renn and Rohrmann ‘s structured framework

Answer 17

Level 1 = Common sense (collective reasoning strategies)

Level 2 = Emotional (Knowledge of risk)

Level 3 = Media Influence (Social, Economic and Political culture)

Level 4 = Cultural influences (Personal identity and views)

Question 18

How is the way individuals in an organisation approach risk assessments and risk acceptability?

Answer 18

Influenced by attitude and behaviour of senior management.

Question 19

What is speculative risk?

Answer 19

Where someone deliberately chooses to place money or other resources in hope of obtaining a positive outcome

Question 20

What is pure risk?

Answer 20

Loss is only possible outcome, no beneficial result.

Question 21

What are strategic risks?

Answer 21

Associated with vision, mission and long term objectives

Question 22

What is operational risk?

Answer 22

risk of loss resulting from inadequate or failed internal processes, people and systems or from external events

Question 23

What is credit risk?

Answer 23

risk that a counter-party will suffer real or perceived deterioration in financial strength or will be unable to pay amounts in full

Question 24

What is failure to abide by GPDR an example of?

Answer 24

Operational Risk

Question 25

Who does GDPR apply to?

Answer 25

Controllers (how and why data is processed) and Processors (process data)

Question 26

What is systemic risk?

Answer 26

(Market risk); the risk of losses in trading positions due to movements of market prices.

Question 27

What is business risk?

Answer 27

Probability of loss inherent in an organisations operations and environment

Question 28

What is insurance risk?

Answer 28

Uncertainty that an insured risk will occur and uncertainty around the amour of the claim.

Question 29

The running out of cash to meet financial obligations is called?

Answer 29

Liquidity risk

Question 30

Legal risk/ contract risk is the

Answer 30

breach of contract both actual and alleged

Question 31

Regulatory risk?

Answer 31

Associated with factors an organisation needs to consider due to the regulatory environment in which it operated

Question 32

Failure to comply with laws and regulations is which type of risk?

Answer 32

Compliance risk

Question 33

What type of information helps us to make informed decisions and avoid unnecessary risks?

Answer 33

Comparative information

Question 34

Which type of risk is most likely to be perceived as low dread/low unknown risk?

Answer 34

Bicycles

Question 35

An individual has stopped smoking because of pressure from friends about the potential health risks. Applying Renn and Rohrmann’s framework of risk perception, this demonstrates which level of influence?

Answer 35

Third level.

Question 36

When did modern risk management ideas originate?

Answer 36

Middle 20th century

Question 37

Why did governments introduce regulation of financial institutions?

Answer 37

To contain the effects of risks they take so the general public are protected

Question 38

What characteristics of risk are people most concerned with?

Answer 38

• Dread risk ( Lack of control, catstrophic potential, inequitable distribution of benefits)
• Unknown risk (limited knowledge)