Fin 4200 Ch2
Order by
56 terms
Terms | Definitions |
|---|---|
 Risk Management | A scientific approach to the problem of dealing with the risks facing individuals and organizations |
| Risk Management | Evolved from corporate insurance management, which focused on the risk of accidental loss to assets and income of the organizations |
| Risk Managers | Those who are responsible for the entire program of pure risk management (in which insurance buying is only a part) |
| Decision Theory Risk-Financing Risk Control | Risk Management represents the merging of three specialties: |
| Decision Theory | Has its roots in operations research and management science |
| Risk-financing | specialty came from the disciplines of finance and insurance |
| Risk-control | specialty is a merger of traditional safety management and systems safety from the military and aerospace industry |
| Enterprise Risk Management | Attempts to integrate the management of all of the firm's risks, both pure and speculative |
| Market Risk Credit Risk Liquidity Risk Operational Risk | Common risk categories in an ERM program include: |
| Market Risk | The risk arising from adverse movements in market prices |
| Liquidity Risk | The risk that the business will have insufficient liquid assets to meet obligations that come due |
| Credit Risk | The risk arising from the potential that a borrower will fail to pay a debt |
| Operational Risk | The definition varies. It includes a variety of pure risks, including technology risks, events such as fire, worker injury, etc. |
| Enterprise Risk Management | Integrated management of all risks, pure and speculative. |
| Financial Risk Management | The management of financial risks, including credit risk, market risk, and liquidity risk. |
| Traditional Risk Management | The management of pure risks, both insurable and uninsurable. |
| Silos | Much of risk management continues to be done in this |
| Risk Control Risk Financing | Ways to manage pure risk |
| Avoidance Reduction | Ways you can exhibit risk control: |
| Retention Transfer | Ways you can exhibit risk financing: |
| Risk Control | Encompasses all techniques aimed at reducing the number o risks facing the organization or the amount of loss that can arise from these exposures. |
| Risk Avoidance | Decisions are made to prevent a risk from even coming into existence. |
| Risk Avoidance | Happens when one refuses to accept the risk even fro an instant |
| Risk Avoidance | This should be used in those instances in which the exposure has catastrophic potential and can not be reduced or transfered |
| frequency & severity | Risk avoidance will exist in the case for which these two things are high: |
| Risk Reduction | A broad set of efforts aimed at minimizing risk. |
| Risk Reduction | This term is considered to include Loss prevention and loss control |
| Loss Prevention | efforts are aimed at preventing the occurrence of loss |
| Loss control | efforts can be directed toward reducing the severity of those losses that do occur |
| Risk Financing | Consists of those techniques designed to guarantee the availability of funds to meet those losses that do occur. |
| transfered or retained | All the risks that cannot be avoided or reduced must, by definition be: |
| Risk Retention | the residual or default risk management technique, exposures that are not avoided, reduced or transfered. |
| Retained | When nothing is done about a particular exposure, the risk is this |
| Unintentional Retention | This occurs when a risk is not recognized |
| Voluntary Retention | Results from the judgement that retention is the most effective means of dealing with the risk |
| Involuntary Retention | Occurs when it is not possible to avoid, reduce, or transfer the exposure to an insurance company |
| Funded Retention | the firms earmarks assets and holds them in some liquid or semi-liquid form against the possible losses that are retained. |
| Risk Transfer | Purchase Insurance Hedging Hold-Harmless agreements Subcontracting certain activities Surety Bonds |
| Intentional/Unintentional Voluntary/Involuntary Retention Funded/Unfunded | Risk Retention Techniques are classified: |
| Risk Management | Evolved from insurance management. Concerned primarily with insurable risk. |
| Insurance Manager | Views insurance as the accepted norm and retention is viewed as an exception |
| Risk Manager | Views insurance as simply one of several approaches to dealing with pure risks |
| Speculative Risk | By managing the amount of pure risk with which the organization must contend, risk management increases the firm's ability to engage in this |
| Avoidance Reduction Retention Transfer | In dealing with pure risk, individuals must select from among the tools of: |
| Maximize the Value | Neil Doherty argues the ultimate goal of risk management is the same as other business functions, which is to _______ |
| Risk Identification | Before anything can be done about risks, someone must be aware of them. |
| Risk Identification | This is the most difficult step in the risk management process. It is difficult because it is a continual process and because it is virtually impossible to know when it has been done completely |
| Risk Identification | This requires a general knowledge of the goals and functions of the organization |
| Inspections Interviews Examination of record and documents Analysis of documents Use of flow charts An internal communication system | Risk identification knowledge can be gained through these techniques: |
| Evaluation | Suggests some ranking in terms of importance |
| Ranking | Suggests measuring some aspect of the factors to be ranked |
| The potential severity of loss The possible frequency or probability of loss | In the case of exposures, there are two facets that must be considered: |
| Criticality Analysis | attempts to distinguish truly important things from the overwhelming mass of unimportant things. |
| Maximum Possible Loss (MPL) | The worst loss that could occur, given the worst possible combination of circumstances |
| Probable Maximum Loss (PML) | The loss that is likely, given the most likely combination of circumstances |
| Loss Unit Concept | the total of all financial losses that can result from a single event, taking into consideration the various exposures. |
First Time Here?
Welcome to Quizlet, a fun, free place to study. Try these flashcards, find others to study, or make your own.