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RMI exam 1
Terms in this set (26)
Define risk appetite and risk ability and their importance of balancing risk appetite and ability.
Risk appetite - the organizations willingness to accept or tolerate risk
Risk ability - The organizations financial capacity for assuming risk
The willingness to accept or tolerate risk without the financial capacity to do so can result in financial hardship/ vice versa unrealized opportunity
There are several considerations that determine risk taking ability. The likelihood of loss in terms of frequency and severity is one factor. Please identify two other factors that determines risk appetite and ability.
internal - past experience with risk
external - public image
The CFO asks you to explain the importance of a risk-taking appetite and ability in the risk management program. Explain the importance.
level of risk organization is willing to take will define the risk response response that organization will choose
Identify the general classes of risk and apply them to common scenarios.
economic risk- arising from operations, economy, financial marketplace
legal risk- inherent in compliance or arising from common law or liability
political risk - arising from changes in the law, changes in government policy or diplomacy. also include war and terrorism
social risk - arising from public relations, loss of reputation, damage to brand or social media. Also include risks related to social stability like pandemics
physical risk - arising from property, people, or information like natural disasters or nuclear accidents
judicial risks - arising from judge decisions
technological risks- arising from our growing dependence on technology such as cyber attacks or loss of data.
You recently learned that an effective risk management program needs governing documents. Identify the three documents that comprise the "governing documents" for the risk management department.
RM mission statement - A short, clear, concise document that identifies risk management within the organization and its relationship to the organization.
RM policy statement - A document of one or two pages that defines the policy for managing risks and the relevance to the organization's strategic plan, goals, and objectives and clarifies the risk management goals and direction.
RM manual - A relatively lengthy document providing a "how to" guide, establishes expected levels of performance, and familiarizes personnel with procedures for dealing with risks and exposures.
Describe how to implement an effective risk management program.
With support and commitment from senior management, Risk mangers should:
provide frequent communication about risk to the organization
communicate frequently with risk management team so they understand goals and objectives
reinforce the organizations commitment to risk management principles
involve all levels of the organization for successful implementation
Explain why risk identification is the most important step in the risk management process
to manage perils exposures and hazards that might come up in organizations objectives they must first identify them
Please identify the four (4) logical classifications of risk faced by Organizations and provide one(1) example of an exposure to loss that might exist in each classification.
liability - premises and operations
Property - land
Human Resources- employees
Net Income - market conditions
Define and list the four elements of negligence.
Negligence - failure to exercise the degree of care which a reasonably prudent person would exercise under the same circumstance
A duty owed
A breach of that duty
List the four elements of an enforceable contract and remedies for breach of contract or failure to perform.
CALL and DRIP
1. For a risk manager, the most useful definition of risk is:
The uncertainty of a positive or negative outcome arising out of a given set of circumstances
Define Pure and Speculative Risk
a. Pure - two possible outcomes, something good or something bad
b. Speculative- three possible outcomes, something good, something bad, and nothing at all
1. Indicate common elements of emerging risks.
b. Difficult to communicate
c. Difficult to quantify
d. No common approach
1. List the components of the Total Cost of Risk and provide an example for each. List two
List two ways TCOR can be used as a tool for
Insurance cost -
RM departmental cost-
Outside service fees-
1. List the FIVE STEPS OF THE RISK MANAGEMENT PROCESS
Which step is the most important and why
Identification (most important because without identifying the risks the rest are useless
1. Explain/identify four impacts of an effective risk management program on an organizations.
a. Increases profitability
b. Improves morale among workforce
c. Protects organizations brand and reputation
d. Raise awareness of importance of risk management
Please define Enterprise Risk Management and Traditional Risk Management. Provide 3 additional names for ERM
a. TRM- functional, siloed view of risks affecting one or more areas of the organization
b. ERM-Cross functional view of risks affecting all areas of the entire organization
ERM other names - Holistic RM, Integrated RM, Strategic RM
1. Please compare Traditional Risk Management (TRM) to Enterprise Risk Management
(ERM) in terms of
Approaches to Risk:
a. TRM- Manages downside risk
ERM- risk has potential to affect both up and downside of risk
Treatment of risk within the organization:
b. TRM- functional, siloed treatment of risk ERM- coordinated, cross functional treatment of risk
Risk Identification and ownership:
c. TRM- places identification and ownership with risk manager ERM- spreads accountability to risk owners and trains all stakeholders
1. Enterprise Risk Management groups risks into four (4) broad categories. Please identify and define those categories and provide an example for each.
a. Financial - related to financial activities, Ex. Market risk
b. Operational- Related to and management activities, Ex. Supply chain
c. Strategic - Related to organizations strategic plan and mission, Ex. Marketing.
d. Hazard- Typically covered by insurance - contracts
1. Define Organizational Risk Culture (ORC).
a. Set of understandings knowledge, beliefs, values and habits towards risk that characterize a human group in search of common purpose
1. Explain three characteristics of an effective ORC.
a. Tone at the top - leadership clarity and positive attitude towards risk
b. Corporate governance- clear responsibility for risk management
c. Decision making - well informed decisions regarding risks
1. Please provide three (3) benefits of implementing an ERM program
a. Identifies threats and opportunities related to organizations strategic plan
b. Uses performance metrics to drive improvement in decision making
c. Enhances management of activities and their associated risks
1. One of the requirements of implementation of an Enterprise Risk Management program is support of the senior management team. Please provide the remaining requirements for implementation.
a. A implementation leader and dedicated cross functional committees
b. an ERM assessment
c. a common language regarding risk
d. An established framework
1. Explain the purpose of ISO 31000 and identify the key components.
a. The purpose is to provide an internationally recognized standard that any organization can use to manage any risk category.
b. Key components - scope, terms and definitions, principles, framework, process
1. Identify the 5 interrelated components of COSO.
a. Governance and culture
b. Strategy and objective setting
e. Information and reporting
1. Please describe three (3) obstacles to Enterprise Risk Management implementation.
a. Lack of support from senior management
b. Showing return on investments
c. ERM limitations
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