ARM 400 Assignment 1-3 Questions With Correct Answers

Traditional Risk Management (TRM) - Answer - Risks are evaluated in a "silo" approach - Losses are usually insurable, pure risks -focus on cost reduction rather than value creation -root cause analysis (RCA) approach ERM - Answer Enterprise Risk Management Enterprise Risk Management (ERM) - Answer a comprehensive risk management program that addresses the organization's pure, speculative, strategic, and operational risks Data Capture - Answer Term for the various methods by which data can be entered into the computer so that it can be processed. ex. smart products, IoT Smart Products - Answer cature and process data through sensors, wireless sensor networks, and data collection transmission enable item to be faster, more useful, etc Internet of Things (IoT) - Answer a world where interconnected, Internet-enabled devices or "things" can collect and share data without human intervention Data Storage - Answer The process of updating one or more databases with new transactions. Cloud Computing - Answer the practice of using a network of remote servers hosted on the Internet to store, manage, and process data, rather than a local server or a personal computer. vast amounts of data can be stored or shared w/o a direct server connection Blockchain - Answer -trusted, independent source of data -distributed digital ledger that facilitates secure transactions w/o need for a 3rd party -track chronology of a particular values change over time, adding a block to the chain -reliability depends on authority controlling access to ledger or blockchain (ie. cryptocurrencies) Data Mining - Answer verification process that establishes trust w/o centralized authority Examples of Blockchains - Answer travel and crop insurance -cancellation or weather event creates a block in the chain that sybolizes automatic payment to the insured, therefore lowering costs Data Analytics - Answer allows RM professionals to better access and analyze data to more efficiently and quickly conceive, develop, and distribute products Data Analytics Examples - Answer 1. vehicle telematics 2. new data relationships 3. text mining 4. developing new products (parametric insurance) Telematics - Answer the use of technological devices in vehicles w/ wireless communication and GPS tracking that transmit data to businesses or gvmt agencies; some return info for the driver Text Mining - Answer Obtaining information through language recognition Tolerable Uncertainty - Answer aligning risks with the organization's risk appetite Risk Appetite - Answer amount of risk an org is willing to take in order to achieve an anticipated result or return Value at Risk (VaR) - Answer The technique to measure the level of financial risk within a firm by measuring the likelihood of losing more than a specific amount of money over a specific period of time Reducing Downside Risk - Answer -ex. losses and failures -speculative risk -business risk -threshold limits Speculative Risk - Answer A chance of loss, no loss, or gain. Pure Risk - Answer a risk that presents the chance of loss but no opportunity for gain Business Risk - Answer The possibility of loss (failure) or gain (success) inherent in conducting business Financial Risk - Answer the extent to which buying, using, or disposing of an offering is perceived to have the potential to create financial harm Operational Risk - Answer The risk of direct or indirect loss of operations due to inadequate or failed internal processes, people or systems, or as a result of external events. Strategic Risk - Answer uncertainty regarding the firm's financial goals and objectives RM provides framework to analyze and manage risks associated w/ an opportunity identification and management of cross-enterprise risks Threshold Limits - Answer triggers alerting RM of operational, financial, or hazard risk to make changes before they are too difficult to manage ex. hedging reduces downside risk resulting from market volitility Earnings Stability - Answer stability over time rather than the highest possible level of profits, requires precise forecasting of fluctuations Examples of Emerging Risks - Answer active assailant, sharing economy Business Continuity - Answer The maintenance of the organization's operations in the event of disaster or disruption. To be resilient, an org cannot interrupt its operations for any appreciable time Legal and Regulatory Compliance - Answer based on -standard of care -contracts entered into by org -federal, state, provincial, territorial, and local laws and regulations Social Responsibility - Answer orgs ethical conduct and philanthropic committments that enhance the orgs reputation Cost of Risk= - Answer cost of accidental losses not reimbursed +premiums and expenses for non-insurance indemnity +costs of risk control techniques +cost of administering RM activities Cost of Risk (definition) - Answer total cost incurred by an org because of the possibility of accidental loss Reduced Deterrent Effects of Hazard Risks Benefits - Answer less frequent losses from RM practices leads to less frequent/severe losses that are more foreseeable -alleviates fear about potential losses increasing feasibility of seemingly risky ventures -inc. profits by greater participation in investment or production activities -makes org safer investment to SH and creditors Inherent Risk (IR) - Answer The risk of material misstatement occurring in an assertion/account (independent of internal controls) actionable risk data is inherently abstract and intangible methods for measuring risk can reveal essential attributes of threats and opportunities Six Basic Risk Measures - Answer 1. exposure 2. volitility 3. likelihood 4. consequences (severity) 5. time horizon 6. correlation Exposure - Answer any condition that presents a possibility of gain or loss, wheather or not an actual loss occurs provides a measure of the max potential damage associated with an occurrence Risk^, exposure^ assuming nondiversifiable Volatility - Answer frequent fluctuations, such as the price of an asset basic measure that can be applied to risk outcomes risk^, volatility^ Chicago Board Options Exchange (CBOE) Volatility Index (VIX) provides a measure of stock market volatility hedging is an example of managing volatility in fuel prices Likelihood - Answer qualitative estimate of the certainty with which the outcome of a specific event can be predicted orgs need to determine the likelihood of occurrence w/o the benefit of a probability analysis Consequences (Severity) - Answer effects, positive or negative, of an occurrence measure of the degree to which an occurrence could positively or negatively affect an org. consequences^, risk^