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Risk Management - Section D questions with correct answers 2024/2025
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Risk Management - Section D questions with correct answers 2024/2025
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Risk Management - Section DWhat is risk - ANSIn the Statement on Management Accounting: Enterprise Risk
Management: Frameworks, Elements and Integration, risk is defined as "Any event or action
that can keep an organization from achieving it's objectives"
What is enterprise risk management (ERM) - ANSThe Casualty Actuarial Society (CAS)
defines ERM as "the discipline by which an organization in any industry assesses, controls,
exploits, finances, and monitors risk from all sources for the purpose of increasing the
organization's short- and long-term value to its stakeholders."
What are some of the benefits of risk management - ANS- Increasing shareholder value
because of the process of minimizing losses and maximizing opportunities.
- Fewer disruptions to the operations of the business.
- Better utilization of the resources of the organization.
- Fewer shocks and unwelcome surprises.
-Providing more confidence to employees, stakeholders and governing and regulatory
bodies.
- More effective strategic planning.
- Better cost control.
- Enables quick assessment and grasp of new opportunities.
- Provides better and more complete contingency planning.
- Improves the ability of the organization to meet objectives and achieve opportunities.
- Enables quicker response to opportunities.
What are the four common categories of risk? - ANS1) Strategic risks include risks that are
on a more global, or macro, level for the business.
2) Operational risks are risks that result from inadequate or failed internal processes, people
or systems.
3) Financial risks are risks connected to the financial health of the company.
4) Hazard risk is the type of risk that is can be insured against.
, What is volatility - ANSVolatility is something that impacts risk. By definition, volatility has to
do with the consistency of results. If sales fluctuate greatly from day to day, there is great
volatility in sales. Volatility increases risk because it increases uncertainty about the future,
and there is a greater probability that the future results will be poor.
What are some examples of internal risks - ANS- Infrastructure events such as
organizational changes or policy changes. Changes can cause customer complaints and a
major decrease in customer satisfaction. Expansion of facilities carries a risk that the
increased production will not be accepted in the marketplace.
- Process-related events such as changes in the way something is done. Changes in
processes can cause a wide range of risk events, for example processing errors and
omissions.
-Internal technological events such as new software that may or may not work properly for a
variety of reasons, including improper setup and inadequate user training.
What are some examples of external risks - ANS- Competition
- Regulations
- Supply chain disruptions
- Political Risk
What are the basic steps in the risk management process - ANS- Risk identification
- Risk assessment
- Risk Prioritization
- Response planning
What are loss frequency and loss severity - ANSLoss Frequency (probability) is the measure
of how often the loss occurs, on average
Loss severity measures how serious a loss is in terms of cost when it occurs
What is a risk map - ANSx axis = 1-9 probability of an event happening
y axis = 1-9 estimated impact of the loss if it occurs
What are some of the quantitative risk assessment tools? - ANS- Value of Risk
- Cash Flow at Risk
- Earnings at Risk
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