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M67 - Fundamentals of Risk Management > Tools and Techniques 2: Assessment and measurement of risk > Flashcards

Tools and Techniques 2: Assessment and measurement of risk Flashcards

1
Q

What are the problems with aggregating risks across an organisation?

A
  • Wide variety of risks involved
  • Combining qualitative with quantitative
  • different risk appetite thresholds at different levels of organisation
  • risks not confined to individual hierarchies
  • relationships between risks
  • Continually changing business external and internal environment.
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2
Q

How do you overcome difficulty in aggregating risks?

A

Select more important risks and assign scores to them.

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3
Q

When do you multiply probabilities?

A

When the risks are independent

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4
Q

When do you add probabilities?

A

When the risks have a common exposure

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5
Q

When is there a correlation between two items?

A

When the value of one is directly related to the change in value of another

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6
Q

What must assessments take into consideration?

A

Likely future changes and whether they are within the organisation and it’s environment

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7
Q

What is the objective of a risk assessment?

A

To assess all identified risks in a consistent way and describe them in a common format

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8
Q

What is the objective of ERM?

A

To identify, analyse and control all the risks associated with an enterprise.

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9
Q

What is risk categorisation?

A

Put risks into categories and then look within the category to determine which risks are important and which can be ignored.

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10
Q

Why are risk categorisation systems important?

A

Enable an organisation to identify accumulations of similar risks and apply common risk control strategies

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11
Q

What will a good categorisation system allow for?

A

Risk to be looked at in various ways.

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12
Q

True of false - It is worth spending time experimenting with different categorisations systems before making a final decision?

A

True

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13
Q

What is one crucial distinction in classification of risks?

A

Timescale of risk

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14
Q

Map the risks to the impact in the business

A

Long term impact of risk - linked to strategic objectives

Medium term impact of risk - projects; processes; change programmes (acquisitions)

Immediate impact - disrupt current operations

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15
Q

Is there an international recognised risk categorisation standard?

A

No

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16
Q

What is frictional risk?

A

Effect of changes in legal, accounting, regulatory or credit agency requirements.

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17
Q

What is aggregation and diversification risk?

A

Risk of insurance claims not falling into planned distribution patterns.

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18
Q

What is COSO reporting?

A

US legal requirements to report accurate financial data

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19
Q

What is the FIRM classification?

A

Uses infrastructure to include core processes, marketplace to reflect business plans and opportunities.

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20
Q

This classification breaks down the external environment in which an organisation operates.

A

PESTLE

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21
Q

What does PESTLE stand for?

A

Politics, Economics, Social, technological, legal and environment.

22
Q

Specification, timescale and budget are all things which can threaten…

A

a project and hence are project risks

23
Q

Why is it important to carefully select risk categories?

A

Compilation of annual reports become easier
Information presented in a comprehensible way
Questions can be more readily answered

24
Q

Define maximum possible loss

A

It is impossible for the loss to exceed the stated value

25
Q

Define maximum probable loss

A

only probable that the loss will not exceed the stated amount

26
Q

When we assess risks we should…

A

involve business managers as they know the business best

27
Q

How can different risks be compared?

A

By reducing their prime characteristics to a simplifies numerical classification

28
Q

The process of comparing different risks and presenting them in an order of priority is called…

A

Risk ranking

29
Q

Are people who rank risk in a position to make subsequent decisions?

A

No

30
Q

The extent to which an organisation will tolerate risk is known as its…

A

Risk appetite

31
Q

How can risk controls be divided?

A

Preventive
Corrective
Directive
Detective

32
Q

Define preventive risk controls?

A

Measurers to stop a risk happening or an unwanted outcome arising

33
Q

Define corrective risk controls?

A

Measures to limit scope for loss and reduce undesirable outcomes

34
Q

Define directive risk controls

A

To ensure particular aim is realised

35
Q

Define detective risk controls

A

After the event, measures to identify when an incident has happened

36
Q

What are most controls implemented in organisations?

A

Preventative

37
Q

What are examples of preventative controls?

A

Separation of duties

Limit actions to specific personnel

38
Q

Insurance is a form of…

A

Corrective control

39
Q

Audits, inspections and similar quality controls are…

A

detective controls

40
Q

Reconciliation is a…

A

detective control

41
Q

How can cost effectiveness of risk controls be estimated?

A

By comparing impact of an uncontrolled risk with impact of the same risk but controlled

42
Q

Risk register…

A

a way to store data. Aim to build a complete picture or risk profile

43
Q

What dual role can a risk register fulfil?

A

Facilitating a pratical management of risk and helping instil RM culture

44
Q

If all claims payments must be authorised by the claims manager before being paid, this is an example of what type of risk control?

A

Preventive.

45
Q

As part of a risk assessment process, an engineering firm has identified the risks faced by the organisation. When categorising these risks, typically the most suitable method is by:

A

Events.

46
Q

Why are risk categorisation systems important?

A

Allow organisations to consider where similar risks may lie and clarify potential for applying generic controls

47
Q

What information does a risk register contain?

A

information which an organisation needs to manage risks

48
Q

Why are financial risk models commonly used for stress testing?

A

Explore the effect of variations in individual parameters

49
Q

What is the objective of producing risk reports?

A

Provide accurate and concise information in a format the recipient can understand

50
Q

Can we add up individual loss estimates to estimate total potential losses?

A

no - aggregate lossess need to be considered

M67 - Fundamentals of Risk Management (7 decks)

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