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Risk Management Exam Study Guide questions with answers.
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Risk Management Exam Study Guidequestions with answers.
One of the impacts of an effective risk management program on an organization is that it supports
managerial objectives. Briefly identify two other impacts of an effective risk management program on an
organization. ANS -1. increases profitability
2. protects brand and reputation
The CFO of your organization has asked for a comparison of the differences between a traditional risk
management (TRM) and an enterprise (ERM) approach. The CFO suggests that she understands that
TRM places risk identification and ownership with the risk manager and ERM uses subject-matter
experts and risk committees to identify organizational risk. Identify two other principle elements for
each of the ERM and TRM approaches. ANS -TRM: 1. manages downside of risk
2. oriented to cause-of-loss
ERM: 1. risk has potential to affect upside and downside
2. tied to key business objectives
Of the four broad categories of risk in an ERM program, hazard is considered a pure risk category, often
covered by, or transferred with insurance. Identify two other broad categories of risk in enterprise risk
management. ANS -1. strategic
2. operational
3. financial
One of the characteristics of an effective Organizational Risk Culture is Tone at the Top, as exhibited by
leadership, with positive corporate attitude towards risk in the organization. Identify and briefly describe
the characteristics of an effective organizational risk culture. ANS -1. corporate governance--clear
responsibility of risk management and timeliness of risk information
2. decision making--well informed risk decisions and encourage good decisions
3. authority and accountability--embedding risk management abilities and responsibilities with
organizations
, One of the benefits of implementing an enterprise risk management (ERM) program is that it allows
organizations to capitalize on the opportunities to increase shareholder value. List three other benefits
of implementing an effective program. ANS -1. identifies threats and opportunities
2. uses performance metrics to drive information in decision making
3. provides a common language
Risk Managers need to understand the requirements for implementation of an ERM program, and be
prepared to manage the obstacles to ERM implementation.
One of the requirements for implementing an ERM program is the need to establish a framework.
Identify three other requirements associated with implementing an ERM program. ANS -1. common
language regarding risk
2. an ERM assessment
3. support from senior management
Two of the common reasons to the implementation of ERM include ERM limitations and perception of
risk versus reality. List three other common obstacles to the implementation of ERM program. ANS -1.
lack of support from senior management
2. difficult to invest capital in risk management programs
3. showing return on investments
ISO 31000 is an international standard that provides a framework for establishing an enterprise risk
management (ERM) program. The standard includes five components or clauses. The first clause is
Scope, and the second is Terms and Definitions. Identify and briefly describe the remaining three
clauses. ANS -1. principles--designed to create value, monitor, and respond to environment
2. framework--components embedded within company's policies and practices
3. process--consistent and structured approach
Define the terms risk appetite and risk ability. ANS -appetite: willingness to take on risk
ability: financial capacity to take on risk
One internal factor influencing risk appetite and risk ability is past experience with risk taking. One
external factor to consider is public image. List two other internal and two external factors that
influence risk appetite and risk ability. ANS -Internal: 1. stage in organization's life cycle
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