ARM54
Risk Management Principles and Practics
Risk Management Principles and Practics
Chapter 1:
Definition of liquidity risk
The risk that an asset cannot be sold on short notice without incurring a loss
Chapter 1:
Definition of credit risk
the risk that customers or other creditors will fail to make promised payments as they come due
Chapter 1
Tell the quadrants of risk.
- Hazard
- Operational
- Financial
- Strategic
Chapter 2
Definition of risk management standart
A document published by a recongnized authority that includes principles, criteria an best practices for risk management.
Chapter 2
Definition of Framework
A structure, including elements such as concepts, methods, procedures and metrics, that supports the risk management process.
Chapter 2
All of the standards and frameworks have these similarities:
- Adoption of an enterprise approach
- Structured process steps
- Understanding of an accountability for defining risk appetite
- Formal documentation of risk in risk assessment activities
- Establishment and communication of risk managment process goals and activities
- Monitored treatment plans
Chapter 2
For the risk management process to be implemented successfully, the standard (s) should be selected based on these criteria:
- Alignment with organizational objectives
- Adherence to controls
- Need to meet regulatory requirements (compliance)
- Risk governance
Chapter 2
Definition of risk governance
Integration of the management principles governing the organization with thr risk management process.
Chapter 2
The definition of risk as the effect of uncertainty on objectives is used in which of the following standarts?
a. Six Sigma
b. ISO 31000
c. COSO ERM
ISO 31000
Chapter 2
A risk management standard includes which of the following? Sellect all that apply
a. Process
b. Framework
c. Regulations
Process and Framework
Chapter 2
Definition of risk management framework
A foundation for applying the risk management process throughout the organization.
Chapter 2
Definition of Risk criteria
Reference standards, measures, or expectations used in judging the significance of a given risk in context with stretegic goals.
Chapter 2
ISO 31000 Standard: Risk Management Principles, Framework and Process (Exhibit is important for the test)
Exhibit is important for the test
Chapter 2
Definition of inherent risk.
Risk to an entity apart fom any action to alter either the likelihood or impact of the risk.
Chapter 2
Definition of residual risk
Risk remaining after actions to alter thr risk's likelihood or impact.
Chapter 2
Definition of risk-based capital.
Amount of capital an insurer needs to support its operations, given the insurer's risk characteristics.
Chapter 3
Definition of hazard risk
A typ of risk that provides the potential for only negative outcome
Chapter 3
Hazard Risk can be categorized in this (3) manner:
- Personal Risk
- Property Risk
- Liability Risk
Chapter 3
Which two measures are traditionaly used for hazard risk exposures?
- Frequency: number of losses
- Severity: The size of a loss
Chapter 3
Risk manager use the following techniques to reduce the frequency and / or severity of hazard risks:
-Avoidance eliminates any possibiliy of loss
-Separation involves dispersing a particular activity over several locations
-Duplication involves relying on backups
-Diversification involves providing a range of products and services
-Prevention involves techniques to reduce the frequency
-Reduction involves techniques to reduce the severity
Benefits of Risk Management for the economy
1. Reduce waste of resources
2. Improved allocation of productive resources
3. Reduce systemic risk
Risk Management Objectives and Goals
1. Support of senior management is essential
2. RM objectives must be aligned with strategy
3. Balance of risk and reward
4. Objectives reflect risk appetite and context
Chapter 1
Definition of risk
the possibility of loss or injury: peril
Chapter 1
Compare the traditional concept of risk with the evoled concept of risk.
The traditional concept of risk, inherent to insurance, is that risk is a hazard that could happend to an individual or organisation. The evolved concept of risk as "the effect of uncertainty on objectives" provides a much braoder understanding.
Chapter 1
Describe the ISO 31000:2009 definition of risk management.
Coordinated activities to direct and controll an organisation with regard to risk.
Chapter 1
Describe the holistic approach to risk management.
Recent risk management theory includes the concept of a holistic approach to risk management. Organizations now realize that it is important to manage all of their risks, not just those that are familiar or easy to quantify. Risks that seem insignificant have the potential to create significant damage or opportunity when they interact with other events. A holistic approach helps organizations to develop a true perspective on the significance of various risks.
Chapter 1
Identify the four high-level categories of risk.
- Hazard (or pure) risk
- Operational risks
- Financial risks
- Strategic risks
Chapter 1
Explain on reason why the evolution of risk management occured.
The evolution of risk management has occured in Part because of high-profile failures of large organisations during the late twentieth and early twenty-first century, followed by the global financial crisis.
Chapter 1
Describe the major changes in the risk landscape.
In large parts because of trends in technology, globalization, and finance, the risk landscape has chenged dramatically. Organizations opeerate in a global enviroment where they face hazard risks such as earthquakes and floods, political risks such as terrorism, economic risks such as a recession, and financial risk such as currency exchange rates. Interconnection of these risks adds to their complexity and potential effect on organizations.
Chapter 1
Categorize the following risks into the four high-level risks:
Cost of materials increases.
Operational risk
Chapter 1
Categorize the following risks into the four high-level risks:
Computer hackers steal confidential information
Hazard risk
Chapter 1
Categorize the following risks into the four high-level risks:
Competitor hires key employees.
Strategic risk
Chapter 1
Categorize the following risks into the four high-level risks:
United States dollar falls against the euro, making the organisations dollar debts more expensive to pay
Financial risk
Chapter 1
Categorize the following risks into the four high-level risks:
There is a fire at a plant.
Hazard risk
Chapter 1
Categorize the following risks into the four high-level risks:
Credit rating is reduced by a rating agency, resulting in increased cost of borrowing.
Financial risk
Chapter 1
Explain systemic risk.
The potetial for a major disruption in the function of an entire market or financial system.
Chapter 1
Explain cost of risk
The total cost incurred by an organization because ot the possibiliy of accidental loss.
Chapter 1
Describe how an organization's total cost of risk associated with asset or activity is calculated.
An organization's cost of risk associated with an asset or activity is the total of these:
- Costs of accidental losses not reimbursed by insurance or other outside sources
- Insurance premiums or expenses incurred for noninsurance indemnity
- Costs of risk control techniques to prevent or reduce the size of accidental losses
- Costs of administering risk management activities
Chapter 1
Describe three benefits to an organisation of reducing deterrence effects by risk management.
Risk management reduces the deterrence effects of uncertainty about potential future accidental
losses by making these losses less frequent, less severe, or more foreseeable. The resulting reduction
in uncertainty benefrts an organization in these ways:
- Alleviates or reduces management's fears about potential losses, thereby increasing the feasibility of ventures that
once appeared too risky
- Increases proflt potential by greater participation in investment or production activities
- Makes the organization a safer investment and, therefore, more attractive to suppliers of investment capital through
which the organizarion can expand
Chapter 1
Explain how risk management can help an organization increase intelligent risk taking.
A benefit of risk management includes providing the organization with a framework ro analyze
the risks associated with an opportunity and then to manage those risks. Risk management can
help the organization decide if the potential rewards are greater than the downside risks, thereby
increasing intelligent risk taking.
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Cartes-fiches
Chapter 3
Definition of hazard risk
A typ of risk that provides the potential for only negative outcome
Chapter 3
Hazard Risk can be categorized in this (3) manner:
- Personal Risk
- Property Risk
- Liability Risk
Chapter 3
Which two measures are traditionaly used for hazard risk exposures?
- Frequency: number of losses
- Severity: The size of a loss
Chapter 3
Risk manager use the following techniques to reduce the frequency and / or severity of hazard risks:
-Avoidance eliminates any possibiliy of loss
-Separation involves dispersing a particular activity over several locations
-Duplication involves relying on backups
-Diversification involves providing a range of products and services
-Prevention involves techniques to reduce the frequency
-Reduction involves techniques to reduce the severity
