The Meaning of Risk Flashcards
What does RM depend on?
- Identifying risks involved in an organisation
- Estimating how often those risks likely to materialise
- Measuring potential consequences
- Exploring options available to exercise control
What must the RM framework be?
- organisation wide
- integral part of the organisation
- organised to allow audit and cont. change
When did the concept of measuring risks date?
17th Century; Fermat and Pascal
What is the BASEL I accord?
System to regulate banks by controlling their capital reserves.
Upgraded to BASEL II/III with introduction of more capital calculation rules and capital controls
What is the Sarbanes - Oxley Act 2002?
USA; governance and financial reporting regulations imposed on all companies on NYSE
List the 9 behaviours that influence risk perception
- Voluntariness
- Controllability
- Delay
- Man made and natural risks
- Familiarity
- Expected Benefits
- Media
- Dread and unknown risks
- Other influences on risk perception
What is voluntariness?
If we choose a risk voluntarily, our risk perception is reduced
What is controllability?
People are more willing to accept risks they think they can control
What is delay?
If the effect of a risk is far into the future, more likely to accept the risk now
What are man-made and natural risks?
Natural risks more accepted than man made. This is due to control
What are expected benefits?
Influence view of risk, more prepared to accept risk where benefits can be justly shared
Does the Media affect our perception of risk?
Yes
What is a dread risk?
Risks people feel like they have little control and which have dreadful consequences i.e. Nuclear accidents
What is an unknown risk?
Risks which people have limited knowledge about i.e. solar flares or nanotech.
Are risks in the high dread/low unknown area attract little attention?
Yes, and therefore are underestimated
What other factors influence risk perception?
Religious beliefs
Lifestyle and economic concerns
What are the components of Renn and Rohrmann ‘s structured framework
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)
How is the way individuals in an organisation approach risk assessments and risk acceptability?
Influenced by attitude and behaviour of senior management.
What is speculative risk?
Where someone deliberately chooses to place money or other resources in hope of obtaining a positive outcome
What is pure risk?
Loss is only possible outcome, no beneficial result.
What are strategic risks?
Associated with vision, mission and long term objectives
What is operational risk?
risk of loss resulting from inadequate or failed internal processes, people and systems or from external events
What is credit risk?
risk that a counter-party will suffer real or perceived deterioration in financial strength or will be unable to pay amounts in full
What is failure to abide by GPDR an example of?
Operational Risk
Who does GDPR apply to?
Controllers (how and why data is processed) and Processors (process data)
What is systemic risk?
(Market risk); the risk of losses in trading positions due to movements of market prices.
What is business risk?
Probability of loss inherent in an organisations operations and environment
What is insurance risk?
Uncertainty that an insured risk will occur and uncertainty around the amour of the claim.
The running out of cash to meet financial obligations is called?
Liquidity risk
Legal risk/ contract risk is the
breach of contract both actual and alleged
Regulatory risk?
Associated with factors an organisation needs to consider due to the regulatory environment in which it operated
Failure to comply with laws and regulations is which type of risk?
Compliance risk
What type of information helps us to make informed decisions and avoid unnecessary risks?
Comparative information
Which type of risk is most likely to be perceived as low dread/low unknown risk?
Bicycles
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?
Third level.
When did modern risk management ideas originate?
Middle 20th century
Why did governments introduce regulation of financial institutions?
To contain the effects of risks they take so the general public are protected
What characteristics of risk are people most concerned with?
- Dread risk ( Lack of control, catstrophic potential, inequitable distribution of benefits)
- Unknown risk (limited knowledge)
