ARM 401 Exam Practice

The amount that property is worth based on the ability of the property to produce income is known as its A. Economic value. B. Market value. C. Net present value. D. Book value.

A

Which one of the following is the measurement of how often a term appears in a document? A. Term frequency B. Inverse document C. Sentiment analysis D. Betweeness

A

A phase in the life of a system when the basic purpose and preliminary design of the system are formulated is the A. Engineering phase. B. Conceptual phase. C. Deployment phase. D. Production phase.

B

Directors (and sometimes officers) owe a duty of loyalty to the A. Employees that support the corporation they serve. B. Stockholders who elect them. C. Federal Securities and Exchange Commission. D. Customers of the corporation they serve.

B

Gwynn is the Personnel Director of a large company. She has received three employee complaints involving the same supervisor for using offensive sexual humor repeatedly. Gwynn is concerned about which one of the following types of claims? A. Poor work conditions B. Sexual harassment C. Wrongful discharge D. Workplace violence

B

In text mining, a collection of documents is called a(n) A. File. B. Corpus. C. Attribute. D. Token.

B

Moving rapidly to detect and evaluate damage and to counter its continuation or spread by giving first aid or protecting property in imminent danger of fire is a basic strategy of the A. Technique of operations review approach. B. Energy transfer theory. C. Change analysis. D. Sequence of events theory.

B

A risk manager and safety engineer need to consider which one of the following interdependent elements when evaluating the premises condition? A. Ergonomic stress B. Air quality and movement C. Construction, occupancy, protection, and external exposures D. Temperature extremes

C

Managers assessing supply chain risks can use track and trace technologies to do all of the following, EXCEPT: A. To locate where products and components are in relation to impending hazards B. To identify the sources of product defects C. To automatically initiate action in response to a condition detected by a sensor D. To identify breakdowns and bottlenecks in transit

C

North American Furnishing was unable to meet its production goals when one of its key suppliers of leather went out of business with no advanced notice. Which one of the following categories of operational risk would this be classified as? A. Process B. People C. External event D. Systems

C

Which one of the following is a fiduciary duty of directors and officers? A. Duty of adherence B. Duty of information C. Duty of care D. Duty of consent

C

Which one of the following system safety techniques is best suited to analyze repetitive human tasks performed in a sufficiently stable environment where most hazards are foreseen? A. Sequence of events theory B. Fault tree analysis C. Job safety analysis D. Technique of operations review approach

C

An empirical probability is based on A. Theory. B. Scientific principle. C. Logic. D. Historical data.

D

Big data includes A. Unstructured data only. B. Structured data only. C. Neither structured nor unstructured data. D. Both structured and unstructured data.

D

Cyber risk intellectual property loss exposures include A. Personal and advertising injury liability. B. Property damage liability. C. Loss to tangible property. D. Cyber extortion of trade secrets.

D

The process of comparing the key risk indicators of an organization with those of other organizations in the same industry is known as A. Hedging. B. Trend analysis. C. Root cause analysis. D. Benchmarking.

D

The theoretical probability of a head on a coin toss is 50%. Based on the law of large numbers, which one of the following is the number of coin tosses most likely to result in an empirical frequency of 50% receiving a head on a coin toss? A. 2 B. 10 C. 50 D. 100

D

This earthquake-resistant construction relies on the resilience of steel or specially designed reinforced concrete to absorb energy, undergo considerable distortion, and return to its original shape. Which one of the following describes this type of design? A. Modified earthquake design B. Masonry design C. Box action design D. Frame action design

D

Which one of the following indicates the values of the target variable on a classification tree? A. Classifications B. Arrows C. Attributes D. Leaf nodes

D

Which one of the following is a way to measure opinion in text? A. Recall B. Precision C. Cluster analysis D. Sentiment analysis

D

Which one of the following represents a way in which a company that is engaged in technology-related activities may incur cyber risk bodily injury or property damage liability? A. Misinformation given by the company's salespeople B. Hardware development C. Untruths told on the company's blog D. Software development

D

From a system safety perspective, components of a system include A. Physical elements. B. Manufacturing and distribution. C. Design and development. D. Implementation.

A

A corporate board of directors owes which one of the following duties regarding material information about a corporation's loss exposures and changes to them? A. Duty to give due weight and consideration B. Duty to disclose C. Duty to assess D. Duty to procure coverage

B

Blakely Company insures its fleet of vehicles under an auto policy with a $10,000 deductible for auto physical damage losses. The estimated probability distribution for Blakely's auto physical damage losses is shown below: A. 33.0% B. 82.5% C. 15.0% D. 6.5%

B

Which one of the following is a possible cause of ergonomic stress? A. Lifting heavy equipment B. Office lighting C. Heavy workload D. Stringent deadlines

B

All of the following are examples of tangible personal property, EXCEPT: A. Checks received in the course of doing business B. Personal computers C. Records of current customers D. A macadam parking lot with storm drains and lighting

D

A company's benefit administrator, while acting on behalf of the company, invested 100 percent of the plan funds in speculative stock. The return on the investment was ten fold. The duty violated by the plan fiduciary in this instance is A. Diversification. B. Prudence. C. Loyalty. D. Adherence.

A

A disadvantage of value-at-risk (VaR) is that VaR A. Does not accurately measure the extent to which a loss might exceed the threshold. B. Uses monetary units to express the potential loss rather than percentages. C. Expresses complex positions in a single value. D. Quantifies the potential loss associated with an investment decision.

A

A financial ratio of income adjusted for risk to the amount of capital required to maintain solvency at a given risk tolerance level is called A. Risk-adjusted return on capital. B. Return on economic capital. C. Return on book value. D. Risk-based capital.

A

A plan fiduciary who fails to act according to plan documents has most clearly breached which one of the following fiduciary duties? A. Adherence B. Diversification C. Loyalty D. Prudence

A

A predictive approach to data analytics involves A. Providing a method to be used repeatedly to provide information. B. Providing information to solve a particular problem. C. Providing sensors that predict accidents. D. Providing a computer program to gather information from the Internet.

A

A worker for Build-Rite Construction Company removed the pressure gauge and warning sticker from an air compressor. The pressure gauge automatically shuts off the compressor when the pressure gets too high. The sticker warned that an explosion could result if the pressure was too high. Without the pressure gauge in place, the air compressor exploded. The explosion killed one worker and severely injured another. If Build-Rite performs a root cause analysis (RCA) of this fatal accident, which one of the following might be determined to be a root cause? A. Inadequate training B. Removal of the pressure gauge C. Explosion of the air compressor D. Removal of the warning sticker

A

Economic capital attempts to quantify the various risks faced by an organization. One such risk includes such things as a flawed production process at a company or failed internal processes because of data system problems. This type of risk is called A. Operational risk. B. Market risk. C. Credit risk. D. Liquidity risk.

A

The general name given to an intentional tort, which covers any false written or oral statement that harms another's reputation is A. Defamation. B. Battery. C. False arrest. D. Assault.

A

A systematic procedure that uses the results of other analysis techniques to identify the predominant determinants of an accident is called A. Fault tree analysis. B. Root cause analysis. C. "5 Whys" analysis. D. Failure mode and effects analysis.

B

Directors and officers are considered to have met their duty of care if they have met two different standards. Which one of the following is one of these standards? A. Maintaining and enforcing the corporate charter and bylaws B. Act in a manner believed to be in the corporation's best interests C. Approve important financial matters and corporate reports D. Be involved in establishing the goals and policies of the corporation

B

East Side Fitness has decided to merge with a yoga studio with two locations near-by. The owners believe that with this complimentary business, they will be able to increase the membership fees for current members and also grow the overall membership. Which one of the following quadrants of risk will be most influenced by this decision? A. Operational risk B. Strategic risk C. Financial risk D. Hazard risk

B

In order to achieve collaboration, group leaders must A. Promote competition among members of the group. B. Remain focused on preventing stakeholders from straying from the common goal. C. Remain focused on achieving the goals of their individual groups. D. Focus on the worker's personality rather than results.

B

Noise level, temperature extremes, and poor air quality are worksite sources of A. Trauma. B. Disabling illnesses. C. Ergonomic stresses. D. Disabling injuries.

B

The risk control measures used to protect people and property from the adverse effects of hostile fires are collectively called A. Loss control. B. Fire safety. C. Life safety. D. Loss prevention.

B

To accurately determine its level of risk, an organization must examine the effectiveness of its efforts to prevent losses from occurring and to reduce the severity of losses that do occur. An organization's efforts in this area are called A. Risk identification. B. Risk control. C. Risk transfer. D. Risk retention.

B

If 95.44% of all outcomes are within two standard deviations above and below the mean and 2.15% of all outcomes are between two and three standard deviations above and 2.15% of all outcomes are between two and three standard below the mean, the percentage of all outcomes that lie beyond three standard deviations from (above and below) the mean is A. .13. B. .26. C. 2.15. D. 4.30.

B: 100% - 95.44% - 2.15% - 2.15% =.26%

Decision tree analysis and event tree analysis are similar in a number of ways, but differ in their A. Process. B. Approach. C. Purpose. D. Appearance.

C

In today's business environment, holistic risk management needs to be a collaborative effort. Which one of the following types of risk is the best example of why collaboration is needed? A. Liquidity risk B. Hazard risk C. Liability risk D. Cyber risk

D

The property damage claims experienced by Runyon Company are normally distributed. The mean of the distribution of property claims is $620 and the coefficient of variation is .75. What is the standard deviation of the property damage claim distribution? A. 155 B. 250 C. 333 D. 465

D: Coefficient of variation = standard deviation ÷ mean; .75 = x ÷ 620; x = 465. The standard deviation of the property damage claim distribution is 465.

In analyzing Partridge's three year loss data for forecasting purposes, what is the mean loss value? A. $1,500 B. $1,590 C. $2,400 D. $2,472

D: In analyzing Partridge's data for forecasting purposes, the mean value for Partridge's losses is $2,472 (the sum of all losses for the three years divided by the total number of claims, 37,080 ÷ 15 = 2,472)

An organization can utilize various methods to control the potential of loss from cyber risk. An organization that utilizes personnel badges or biometrics to limit access to sensitive areas is using which one of the following risk control measures? A. Managerial controls B. Personnel controls C. Physical controls D. Procedural controls

C

Location is a key pre-loss activity to control earthquake damage because A. Designs for earthquake-resistant buildings are ineffective. B. The availability of construction operations in a location is crucial. C. Structures situated on stable earth can absorb most earthquake shock waves. D. The availability of other temporary facilities helps an organization return to operations more quickly.

C

Degree, closeness, and betweeness all fall into which one of the following categories? A. Sociograms B. Reputational risks C. Matrices D. Centrality measures

D

Four Grains Cereal Company signed a contract to deliver 250,000 boxes of cereal to a national supermarket chain at a specified price per box of cereal six months from today. Between now and when the grain to make the cereal is purchased, the cost of the grain may increase. If the cost of this important ingredient increases, the profitability of the transaction will be altered. This financial risk that Four Grains faces is A. Exchange rate risk. B. Credit risk. C. Market risk. D. Price risk.

D

From a system safety perspective, change analysis is an analysis A. That dissects a repetitive task to determine potential hazards if each action is not performed. B. That identifies the critical components of a system and ranks the severity of losing each component. C. That uses the results of the other analysis techniques to identify the cause of the accident. D. That projects the effects a given system change is likely to have on an existing system.

D

In a fishbone (Ishikawa) diagram, the diagonal lines (the fish's bones) emanating from the horizontal arrow (the fish's spine) represent A. Effects. B. The problem being investigated. C. Recommendations. D. Causes.

D

Jemma has two pairs of earrings she wants to ensure against theft. Jemma's earrings are categorized as A. Intangible property. B. Community property. C. Real property. D. Personal property.

D

Maintaining roof and wall systems, including roof tie-downs, in good repair and providing adequate supports for outside structures is a pre-loss action for A. Windstorm. B. Earthquake. C. Tornado. D. Flood.

A

The Supply Chain Resilience Assessment Model (SCRAM) helps an organization anticipate and overcome supply chain disruptions by focusing on its A. Vulnerabilities and capabilities. B. Strengths and weaknesses. C. Suppliers and customers. D. Relationships and reliability.

A

The physical stress on joints, bones, muscles, and nerves and the stress created by environmental factors such as lighting, glare, noise, color, and temperature is called A. Ergonomic stress. B. Employment stress. C. Environmental stress. D. Exercise stress.

A

What is the term given to the duty to act for someone else's benefit? A. A fiduciary duty B. An imposed duty C. A non-exempt duty D. An insurable duty

A

The initial phase in the life cycle in any safety system is the A. Engineering phase. B. Conceptual phase. C. Production phase. D. Preliminary phase.

B

The two categories of property that are exposed to loss from cyber risk are A. Real and personal. B. Tangible and intangible. C. Insured and uninsured. D. Covered and not covered.

B

Which one of the following statements is true if earnings at risk are $200,000 with 90% confidence? A. Earnings at risk are projected to be $180,000. B. Earnings at risk are projected to be less than $200,000 10% of the time. C. Earnings at risk are projected to be $200,000 90% of the time. D. Earnings at risk are projected to be greater than $200,000 10% of the time.

B

Which one of the following statements is true regarding the Life Safety Code®? A. Compliance with the Life Safety Code® is usually voluntary and optional. B. The standards of the Life Safety Code® are incorporated into the statutes and ordinances of most United States localities. C. Failing to comply with the Life Safety Code® is a breach of contract. D. The Life Safety Code® considers the general characteristics of building construction and external protection.

B

Which one of the following statements is true with regard to linear regression analysis? A. For any past year, the dependent variable must plot on the regression line. B. The regression line represents the "best fit" of a straight or smoothly curved line to actual historical data from prior periods. C. Actual future values must equal the values forecast through regression analysis. D. Regression analysis can only be applied if the dependent variable increases over time.

B

Vandenberg Company retains workers compensation medical expenses. The risk manager ran a regression using workers compensation medical costs as the dependent variable and company payroll (in actual dollars) as the independent variable. Results of the regression were: A. $372,227 B. $404,256 C. $409,970 D. $416,540

B: y = mx + b, where b = y-intercept and m = slope. Payroll is the independent variable x axis and WC medical costs are the dependent variable y axis. y = .098 (3,750,000) + 5.20, y = 367,505.20; 367,505.20 × 1.10 = 404,255.72.

A 5 Whys analysis is used primarily for problems involving A. Environmental factors. B. Technology. C. Human factors. D. Construction.

C

Regarding sexual harassment claims, isolated incidents are insufficient from a legal standpoint to establish the existence of which one of the following types of work environments? A. Unpleasant B. Diverse C. Congenial D. Hostile

D

The balance sheet provides a snapshot of an organization's financial condition A. At the start and end of a business day. B. Over one 12 month period. C. For at least two points in time for comparison purposes. D. At a given point in time.

D

The cyber liability financing technique that most strongly encourages risk control is A. Noninsurance risk transfer. B. Insurance. C. Bonding. D. Retention.

D

The portion of fire safety that focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of the building is A. Fire safety. B. COPE safety. C. Occupancy safety. D. Life safety.

D

Which one of the following is an example of a noncurrent liability? A. Short-term debt B. Accounts payable C. Unearned revenue D. Long-term notes payable

D

Which one of the following team approaches to risk identification is primarily used to design complex, scientific systems? A. Delphi technique B. SWOT C. Scenario analysis D. HAZOP

D

Which one of the following types of risk analysis uses historical data to assign specific values to consequences and their probabilities to reach a numeric indication of the level of risk? A. Predictive analysis B. Qualitative analysis C. Expert analysis D. Quantitative analysis

D

A predictive model was developed for Shelton Manufacturing to determine the likelihood of current and future employees suffering from hearing loss. The predictive model was applied to Shelton Manufacturing data of 200 employees, 10 of whom developed hearing loss in the past year. Based on the numbers shown in the performance metric below, what is the accuracy of the hearing loss predictive model? A. 0.40 B. 0.80 C. 0.93 D. 0.95

C

All of the following are all examples of personal property, EXCEPT: A. Machinery B. Accounts receivable records C. Money and securities D. Unimproved land

D

A coefficient of variation is derived by A. Taking the square root of the sum of the squares of the differences between the outcomes and the mean of a distribution. B. Dividing a distribution's standard deviation by its mean. C. Summing the squares of the differences between various points and a straight line on a graph. D. Dividing a distribution's standard deviation by its mode.

B

Designating and training backup employees for every job, or at least a variety of jobs, is A. Security backup training. B. Opposition training. C. Redundancy training. D. Cross training

D

Fiduciary liability loss exposures from benefit plans arise mainly out of the possibility that A. Employees will allege that they did not receive salary and other compensation commensurate with their contributions to the organization. B. Beneficiaries of an employee benefit plan may make a claim against the plan officials for breach of their fiduciary duties. C. Shareholders will allege that the organization's directors and officers were negligent in allocating resources to benefit plans. D. Vendors that provide benefits will file liens against the corporation's assets for unpaid balances due.

B

Justin is the chief operating officer for Rapid Transit, an over-night package delivery service operating in six states. Rapid Transit has been having problems with late package deliveries. Justin called a meeting of department heads, and hired a facilitator to run a brainstorming session. The facilitator drew a horizontal arrow pointing to the right on a white board. She wrote "Late Package Deliveries" at the end of the arrow. She then started a discussion of causes, focusing on "4 Ms" (Machinery, Methods, Manpower, and Materials). These causes were depicted as diagonal lines off the arrow. Each cause was examined in isolation through probing questions asked by the facilitator, until root causes were determined. The figure the facilitator used to provoke discussion is called a A. Decision tree. B. Fishbone diagram. C. Fault tree. D. Risk management matrix.

B

Like most insurance companies, the majority of Insurance Company's portfolio is invested in bonds. If interest rates increase, the value of the bonds in the portfolio will decrease. This risk to Insurance Company is called A. Interest rate risk. B. Price risk. C. Credit risk. D. Liquidity risk.

A

Which one of the following Internet of Things devices has greatly influenced vehicle and driver safety? A. Telematics B. Robots C. Drones D. Blockchain

A

Which one of the following best describes the role of actuators in the Internet of Things? A. Actuators automatically initiate action in response to a condition detected by a sensor. B. Actuators tract where a product or its components are and have been. C. Actuators monitor and record conditions like temperature, chemical concentrations, vibration intensity, and vital body functions. D. Actuators provide common, authoritative, and immutable records of transactions.

A

Within a system safety context, the engineering phase of a system's life cycle is that phase in which A. The system's design is constructed and prototypes are tested. B. The actual product or system is created. C. The basic purpose and preliminary design of the system are formulated. D. The system's disposal is managed in an environmentally safe manner.

A

Determining the probability that a certain event will occur can be an important part of exposure analysis in the risk management process. Which one of the following is the term used for probability that is developed based on actual experience? A. Material probability B. Empirical probability C. Theoretical probability D. Bona fide probability

B

For an organization to manage its reputation risk, it must earn and retain the trust and confidence of its key stakeholders. A key external stakeholder for a corporation is the corporation's A. Employees. B. Shareholders. C. Management team. D. Board of directors.

B

Geneva Auto Repair (GAR) has been operating at the same location for over 20 years. The local newspaper published an article accusing the business of dumping pollutants into a local stream. GAR has denied the activity, and claims to have records of recycling and tank inspections to defend its position. The risk manager performed a text mining of social media websites to see whether any damage has been done to the company's 20 year reputation. The analysis reveals that the negative comments seem to cluster within a particular demographic. This information would help the risk manager in which one of the following ways? A. It allows GAR to seek to increase its customer base in a different demographic. B. It allows GAR to tailor its response to concentrate on that demographic. C. It allows GAR to attempt to discredit the local newspaper with its inspection results. D. It allows GAR to ignore the news article for now.

B

Grace is the risk manager of a U.S.-based hotel chain with properties in Latin America. Grace posted on her personal social media web page, "Big Boss is checking things out south of the border. Maybe someone will grab him! Never fear--we have kidnap insurance." A co-worker saw this posting and reported it to company authorities. Grace could be terminated because her posting A. Was defamatory. B. Created a security risk. C. Revealed intellectual property. D. Created a reputational risk.

B

Henry filed a lawsuit against Stat University alleging the school failed to prevent unauthorized access to his academic records. Henry's lawsuit it based on A. Unauthorized interference. B. Invasion of privacy. C. Breach of contract. D. Assault and battery.

B

Home Housewares Inc. is a retail store applying for commercial coverage with ABC Insurance. The underwriter requested a copy of Home Houseware's most recent financial statements. The underwriter will use the balance sheet to determine A. Home Houseware's sources of cash as of the balance sheet date. B. Home Houseware's financial position as of the balance sheet date. C. Home Houseware's gross profit margin as of the balance sheet date. D. Dividend payments to shareholders as of the balance sheet date.

B

In addition to analyzing individual risks, an organization can prepare a report to depict all of the organization's risk scenarios. This analysis provides a description of the risk, lists the risk owners, specifies the risk quadrants impacted by the risk, estimates the likelihood of loss and the resulting consequences, assigns a risk level, and specifies any improvements needed. This collection of reports on the individual risks is called A. A risk management policy statement. B. An organizational risk register. C. A company risk report. D. A risk management manual.

B

Pre-employment screening is an example of which one of the following types of risk control measures for cyber risk? A. Physical control B. Procedural control C. Managerial control D. Personnel control

B

SE Industries has identified windstorm as a risk. The risk manager has assembled a team to project the potential consequences of windstorm. The team includes individuals from various functions within the organization. Which one of the following team approaches to risk identification is SE Industries using? A. Delphi technique B. Scenario analysis C. SWOT analysis D. HAZOP

B

SoCal Movie Company produces movies at a studio in Southern California. The risk manager decided to identify the range of potential consequences associated with various risks that the company faces. For example, if a severe earthquake occurred while the company was filming a movie, there could be deaths and injuries, destruction of movie sets, delays in production, costs associated with filming at an alternative location, and loss of reputation and good will. The type of analysis performed by the risk manager is called A. SWOT analysis. B. Scenario analysis. C. Sensitivity analysis. D. HAZOP analysis.

B

Which one of the following best describes a probability distribution? A. It is a table, chart or graph that shows how many of each type of identified loss will occur during the next 12-month period. B. It represents probability estimates for a particular set of circumstances and the probability of each possible outcome. C. It shows the likelihood of particular future events and an estimate of the financial consequences of each predicted event. D. It predicts future events based on the frequency and severity of past events.

B

XYZ Insurance Company's Chief Actuary, Barbara Hill, addressed the XYZ's Board of Directors. "Based on our analysis, there's an 85 percent chance of profitability if we pay $120 million to acquire ABC Insurance Company," she told them. When asked to explain her findings, she said that her team collected data on all the important variables that would impact profitability. Then they programmed a computer to select values from the probability distribution of each variable and to calculate net income. The computer was programmed to repeat the process 250,000 times, and to store the results. Then a probability distribution was created from the results. The type of analysis Barbara Hill was describing is called A. The Delphi technique. B. Monte Carlo Simulation. C. Sensitivity analysis. D. Break-even analysis.

B

The number of auto physical damage claims for fleet vehicles at Right-a-Way Delivery Service in any year is normally distributed. Next year, the expected number of fleet vehicle physical damage claims is expected to be 712 with a standard deviation of 25. Based on this information, what is the probability that between 737 and 762 auto physical damage claims will occur next year? A. 2.2% B. 13.6% C. 24.3% D. 27.2%

B: In a normal distribution, the percent of all outcomes falling within 1 and 2 standard deviations is 13.59%.

Thorpe Company uses failure mode and effects analysis (FMEA) in their analysis of system components. The company rates severity of the consequence on a 1 to 10 scale, with 10 being the most severe. The likelihood of occurrence is rated 1 to 10, with 10 being the highest probability of occurrence. The likelihood that the failure will not be detected before a critical point is also rated 1 to 10, with 10 being the highest probability that the failure will go undetected. If the severity of failure is 8, the likelihood of occurrence is 7, and the likelihood of detection is 4, what is the criticality score? A. 28 B. 56 C. 224

B: The criticality score is the product of the probability of failure and the severity of failure, 7 X 8 = 56

Alpha Pharma Company is considering adding a new product. It is estimated that the economic capital needed for the product will be $50 million. The product is projected to generate revenues of $45 million and expenses of $38 million. Managers assign an "expected loss" of $2 million based on the pure risk associated with this new product. The risk-free rate is 2%. Based on this information, the risk-adjusted return on capital (RAROC) for this product is A. 10%. B. 12%. C. 14%. D. 16%.

B: The numerator in the calculation is: $45,000,000 − $38,000,000 − $2,000,000 + (.02 x $50,000,000) = $6,000,000. $6,000,000 ÷ $50,000,000 = .12 RAROC = (Revenue - Expense - Expected Loss + Income from capital)/economic capital

A storm with high winds or violent gusts of wind with little or no rain is which one of the following? A. Hurricane B. Earthquake C. Windstorm D. Tornado

C

All systems have four features. Which one of the following is one of those features? A. Cargo B. Energy C. Environment D. Elements

C

An insurer is beginning to write business in a new state. The claim manager, Carla, wants to know how many new claim representatives to hire to accommodate the additional volume of claims. Based on the marketing department's estimate and industry data, Carla has determined the mean number of new claims to be 2,000, with a standard deviation of 1,000 in a normal distribution. If a claim representative can typically adjust 600 claims per year, and Carla wants at least 66% certainty that she has enough representatives, which one of the following represents how many representatives she will need to hire? A. 2 B. 3 C. 5 D. 6

C

Which one of the following statements is true regarding an effective risk reporting system? A. Most organizations rely on reporting systems that provides quantitative data only. B. An effective reporting system should only include internal sources of information. C. An effective reporting system provides efficient information flow up and down the lines of authority. D. An effective reporting system allows senior management to receive individual reports from each department.

C

Huntington Grill began serving its summer menu on June 1. The chef is particularly interested in social media comments on two new dishes that had never been served at the restaurant prior to June 1. Which one of the following is a type of data mining analysis that would help the restaurant focus on comments involving those two dishes? A. Sentiment analysis B. Centrality measures C. Sociogram D. Term frequency analysis

D

Joe owns a small stock brokerage, XYZ Company. He also serves as a director and pension fund fiduciary at XYZ Company. Most of the pension fund at XYZ Company is invested in the company's own stock. When XYZ starts having financial troubles, the price of the stock goes down. Various brokers at Joe's firm want to move much of the XYZ pension fund to a safer investment. However, Joe fails to approve the transfer, because he fears the effect such a move would have on XYZ. As a result, the value of the pension fund drops. Which one of the following fiduciary duties is Joe breaching by focusing solely on the possible financial impact that a change would have on XYZ Company? A. The duty of prudence B. The duty of adherence C. The duty of diversification D. The duty of loyalty

D

North American Furnishings (NAF) recently received a phone call from a retail store that sells its products. The store was reporting that it had received several complaints about a leather couch made by NAF. NAF is anxious to stay in front of any reputational risk that may develop regarding this product via social media. After collecting a corpus of social media comments provided by customers, competitors, and reviewers, the risk manager will want to do which one of the following? A. The risk manager will want to perform a sentiment analysis. B. The risk manager will want to contact all of the customers and reviewers that made negative comments. C. The risk manager will want to develop a sociogram. D. The risk manager will want to mine the corpus for specific words or phrases that he or she wants to monitor.

D

One of the characteristics of individuals and groups of individuals that affects susceptibility to injury or death caused by a building fire is A. Educational level. B. Occupation. C. Gender. D. Age.

D

One of the reasons that building occupancies affect life safety is that different occupancies have different A. Architectural designs. B. Construction material which have different fire-resistive ratings. C. External environments. D. Features that affect safe exit from a building.

D

Which one of the following team approaches to risk identification involves a select group of experts in question-and-response cycles until a consensus is achieved? A. HAZOP B. Scenario analysis C. SWOT D. Delphi technique

D

Claims Central is a medical claims manager for group medical expense insurance plans. Claims Central administers the group health insurance claims of its clients in exchange for a management fee. The agreement between Claims Central and its clients guarantees that Claims Central will be responsible for any data breaches involving medical claims data. A.J. Reynolds, a professional athlete, has just filed a lawsuit against Claims Central. He alleges that details of his recent lower back surgery were leaked to the press, reducing the value of the new contract he was negotiating. If Reynolds can prove his allegation, Claims Central may be held responsible for damages to Reynolds under which legal doctrine? A. Breach of contract B. Absolute liability C. Comparative negligence D. Joint-and-several liability

A

Third parties in a cyber insurance transaction are typically A. The party whose database was breached. B. Customers of the first party. C. Customers of the second party. D. The insurer of the party whose database was breached.

B

A data analysis technique that an insurer would likely use to analyze claims adjusters' notes is A. Social network analysis. B. A classification tree. C. Text mining. D. Regression.

C

Smart contracts can be used in a supply chain to protect parties from which one of the following persistent problems? A. Natural disasters B. Explicit warranty C. Product defect risk D. Payment risk

D

The level of confidence an organization places in the organization's risk management culture, practices, and procedures is called A. Probable maximum loss. B. Tolerable uncertainty. C. Risk tolerance. D. Risk assurance.

D

Directors' and officers' fiduciary duties include the duty of A. Obedience. B. Reliability. C. Trustworthiness. D. Credibility.

A

A construction company based in the U.S. has building contracts in five different foreign nations. The construction company agreed to accept payment for its work in each country's currency. The risk of loss of value when these foreign payments are converted to U.S. dollars is called A. Pure risk. B. Credit risk. C. Exchange-rate risk. D. Liquidity risk.

C

A female supervisor consistently reprimands male, but not female, employees for using the Internet for personal use. This is an example of A. Disparate impact. B. Overt discrimination. C. Disparate treatment. D. Sexual harassment.

C

A systematic procedure that uses the results of other analysis techniques to identify the predominant determinants of an accident is called A. Fault tree analysis. B. Failure mode and effects analysis. C. Root cause analysis. D. "5 Whys" analysis.

C

Fred is a nurse working the first shift at Save our Souls Hospital (SOS). He is the only man and the only unmarried nurse on that shift. He also has more seniority than all but one other nurse on his shift. What is the term given to the type of discrimination Fred is claiming? A. Intentional discrimination B. Overt discrimination C. Disparate treatment D. Disparate impact

C

Which one of the following statements is true regarding sources of risk affecting property exposures? A. Deliberate acts of individuals or groups are generally considered natural risk sources. B. Physical risks to property can generally be broken into two categories: natural and mechanical. C. Risk control techniques can usually manage the likelihood and consequences of human risk sources to some extent. D. Risk management has little, if any, effect on controlling the consequences of events caused by natural sources.

C

A predictive model is applied to a clothing manufacturer's data of 1,000 employees, 50 of whom had workplace injuries in the past year. The table below shows how often the model correctly and incorrectly predict for each employee "yes, will have an accident" or "no, will not have an accident." What is the accuracy of the workplace injury predictive model? A. .800 B. .842 C. .889 D. .985

D: (TP + TN) ÷ (TP + TN + FP + FN); (40 + 945) ÷ (40 + 945 + 5 + 10) = 0.985

Which one of the following is an example of a managerial control used to mitigate cyber risk exposures? A. Centralizing responsibility for cyber security B. Establish a privacy policy for employees C. Try to maintain positive relationships with customers D. Install antivirus software on every computer

A

A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable is A. Risk control. B. Risk prevention. C. A risk source. D. A consequence of risk.

A

Durham Insurance (DI) provides personal lines coverage to policyholders throughout the U.S. A local newspaper in New Jersey has accused DI of unfair and deceptive claims practices following a recent hurricane. The risk manager works with data scientists to mine news and social media posts since the release of the initial news article. They learn that the negative sentiment has spread in a short period of time and that they must implement an immediate response to defend its reputation. Which one of the following tools would help DI determine which stakeholder to focus on, and the most influential places to post responses? A. Sociogram B. Classification tree C. Process map D. Fault tree

A

Employers face a number of potential loss exposures due to federal legislation and state laws. Of the various types of Employment Practices Liability (EPL) claims, which one of the following is a major type of EPL claim? A. A retaliation claim B. A retirement claim C. An exempt employment claim D. An overtime pay claim

A

Errors and omissions (E&O) insurance is coverage designed to protect what professionals from failing to recognize a coverage gap for a client's cyber loss exposure? A. Producers B. Underwriters C. Claims D. Customer service representatives

A

In failure mode and effects analysis, a failure mode's effect on a process requires identifying the effect's location in the system being analyzed. A failure mode with an effect on the same level that is being analyzed produces A. A local effect. B. A community effect. C. A next-higher level effect. D. An end effect.

A

In using the coefficient of variation when comparing two distributions, if both distributions have the same mean, then the distribution with the larger standard deviation will have A. Greater variability. B. Less variability. C. More skew. D. Less skew.

A

In workplace settings, the distinction between injuries and illnesses is relevant because A. Risk controls are different for injuries than for illnesses. B. Illnesses require much less risk control attention than injuries. C. Injuries require much less risk control attention than illnesses. D. Risk controls affect injuries but not illnesses.

A

Jean is a director on the board of an apparel promotional company. Towards the company, Jean owes a duty of A. Undivided loyalty. B. Profitability. C. Divided loyalty. D. Undivided time.

A

Joe works in an auto garage. His work area is cluttered and disorganized. His supervisor is rarely in the area, and Joe lacks direction and proper training. Joe is injured when he receives a severe shock from improper grounding while using a piece of electrical equipment. This example best illustrates the accident causation theory of the A. Technique of operations review (TOR) approach. B. Domino theory. C. Job safety analysis. D. Energy transfer theory.

A

One of the main functions of a risk-based capital allocation model is A. To prospectively determine the amount of risk associated with a business activity. B. To assist companies that are considering issuing securities by measuring the degree of risk that investors assign to the securities. C. To measure the performance of management on a risk-adjusted basis. D. To properly assign risk-adjusted discount rates to capital investment projects.

A

Risk indicators such as experience and authority levels apply to which one of the following operational risk classes? A. People B. Systems C. Process D. External events

A

Several types of economic capital can be considered in a risk-adjusted return on capital model. One category of economic capital is the portion of an organization's overall economic capital that is allocated to a particular activity. This category considers the degree of correlation among the risks of the organization's various activities. This type of economic capital is called A. Diversified economic capital. B. Marginal economic capital. C. Stand-alone economic capital. D. Divisional economic capital.

A

The assembly line production speed was automatically reduced when a sensor detected employee fatigue. Which one of the following technological advancements is responsible for this supply chain risk management tool? A. Internet of Things B. Blockchain C. Track and trace technology D. Radio frequency identification tags

A

The basic accounting equation on which the balance sheet is structured is A. Assets = Liabilities + Net Worth B. Liabilities = Assets + Net Worth C. Net Worth = Liabilities + Assets D. Assets = Liabilities - Net Worth

A

The cost of replacing damaged property with similar property that performs the same function but might not be identical to the damaged property is known as A. Functional replacement cost. B. Partial replacement cost. C. Reproduction cost. D. Market value.

A

The fair value of assets minus the fair value of liabilities, with both of these measures adjusted for risk, is known as A. Market value surplus. B. Book value. C. Value at risk. D. Risk-based capital.

A

Which one of the following is an example of a report that would most likely contain both quantitative and qualitative data? A. A customer satisfaction survey B. A disaster recovery plan C. A financial statement D. A profit and loss statement

A

Which one of the following statements is true regarding event tree analysis? A. Event tree analysis typically provides only two options, success or failure. B. Event tree analysis provides only quantitative information. C. Event tree analysis provides only qualitative information. D. Event tree analysis can be used to select the most effective strategy to achieve a goal.

A

Which one of the following statements is true regarding key risk indicators (KRI)? A. A KRI must be leading, rather than lagging, to be effective. B. A KRI is an effective predictor of external event risk. C. A KRI is the event or circumstance that directly led to a loss. D. A KRI is a financial metric used to help define potential losses.

A

Which one of the following statements regarding controlling social media risks is true? A. Employers may monitor social media websites to learn about and to control risky employee activities. B. As social media is developing so rapidly, a risk control program cannot have a written social media policy. C. Employees may not be prohibited from using social media while at work. D. Risk control measures regarding social media should be developed by the information technology department rather than by the risk management department.

A

A predictive model is applied to a clothing manufacturer's data of 1,000 employees, 50 of whom had workplace injuries in the past year. The table below shows how often the model correctly and incorrectly predict for each employee "yes, will have an accident" or "no, will not have an accident." What is the recall of the workplace injury predictive model? A. .80 B. .842 C. .889 D. .985

A: TP ÷ (TP + FN); The recall of the workplace injury predictive model is calculated as 40 ÷ (40 + 10) = .80

A contract programmer agrees to construct a website for a chocolate candy retailer in order to increase its on-line marketing presence. The programmer agrees to have the website up and running in time for Easter but has to cut some corners to meet the deadline and leaves out a security feature. The website is hacked and the chocolate candy retailer misses the Easter candy season. Which one of the following best describes the programmer's cyber risk loss exposure? A. The programmer has an extra expense exposure. B. The programmer has an errors and omissions liability exposure. C. The programmer has an advertising injury liability exposure. D. The programmer has an intellectual property liability exposure.

B

A group of large life insurance companies pooled their mortality data over the past 25 years. Based on the pooled mortality data, a mortality table showing the probability of death at specified ages was developed. The insurers used these probabilities in pricing life insurance products. The probabilities developed from the pooled mortality experience of the insurers are best described as A. Dependent probabilities. B. Empirical probabilities. C. Conditional probabilities. D. Theoretical probabilities.

B

A post-loss action for a flood cause of loss is A. Protecting flammable gas piping. B. Clearing drains of debris. C. Using temporary levees. D. Not allowing electrical wiring that is not waterproof.

B

A process in which managers perform an annual self-audit of the level of confidence they have in the risk management culture, practice, and procedures in their area is called A. An underwriting audit. B. A control risk self-assessment. C. A risk management review.

B

A risk manager's goal when using a social network is A. To specifically identify individual customers and stakeholders. B. To reach as many end users as possible with the minimum amount of effort. C. To select a network with low betweenness. D. To respond to every posting that might pose a reputational risk.

B

An intangible asset resulting from a collection of perceptions and opinions, past and present, about an organization that resides in the consciousness of its stakeholders is known as an organization's A. Code of ethics. B. Reputation. C. Intellectual property. D. Social responsibility.

B

Geneva Trucking installed telematics devices in all of its trucks. The sensors in two trucks indicate a frequency of hard braking. Which one of the following types of indicator does this information provide for Geneva Trucking? A. Control indicator B. Leading indicator C. Generic indicator D. Lagging indicator

B

Meat Products Company (MPC) runs packing plants in three Midwest states. The company was in the news recently because of its labor practices. The Department of Labor (DOL) investigated complaints from five female employees that MPC discriminated against them. The DOL found the claim was true. The Immigration and Naturalization Service (INS) found that the company employed illegal immigrants and paid them less than the minimum wage. When this news became public, MPC's reputation was severely harmed. This scenario illustrates which source of reputation risk? A. Corporate social responsibility B. Regulatory and legal compliance C. Communication and crisis management D. Corporate governance and leadership

B

One approach to managing reputation risk for an organization involves carefully managing the organization's interactions with the general public, its stakeholders, and its employees. This method is a A. Socratic approach. B. Systemic approach. C. Top-down approach. D. Bottom-up approach.

B

Ready Van Lines installed sensors in all the vehicles in the company fleet. The sensors record fluid levels, tire pressure, and key mechanical data. The sensors also record driving behavior, such as rate of acceleration from a standing stop, braking time, average highway driving speed, and hours of use. The data obtained from the sensors helps Ready Van Lines to target vehicle maintenance and repair needs, as well as unsafe driving behavior. All Ready Van Lines use of the sensors illustrates A. The use of robotic process automation to reduce data entry errors. B. The use of telematics to reduce operational risk. C. The use of blockchain to improve financial results. D. The use of data analytics to improve competitive position.

B

Retention of cyber risk loss exposures A. Is a form of noninsurance risk transfer. B. Increases the likelihood of risk control. C. Is the only risk-financing technique available for first-party claims. D. Reduces the insured's financial uncertainty.

B

The concept of supply chain resilience differs from traditional risk management in which one of the following ways? A. Supply chain resilience tries to avoid risks rather than manage them. B. Supply chain resilience places a greater emphasis on responding to disruptions than on avoiding them. C. Supply chain resilience is less concerned with competitors than traditional risk management. D. Supply chain resilience attempts to eliminate the interdependent nature of the process.

B

The extent of an organization's product of human intelligence that has economic value refers to which one of the following? A. Personal property B. Intellectual property C. Business income D. Real property

B

The original cost of a property is known as the A. Replacement cost. B. Historical cost. C. Tax-appraised value. D. Market value.

B

To prove that a hostile work environment exists, an employee generally must show several facts. Which one of the following is one of those facts? A. Remedial action taken by the employer was ineffective. B. The harassment affected a term or condition of employment. C. The employee is not a member of a protected class. D. The employer did not know about the harassment.

B

Westfolk Mutual (WM) is a large personal lines insurer in New York. WM's management just learned of a news article that addresses the use of aftermarket auto parts in the state. The article discusses both the pros and cons of aftermarket auto parts. The article also names WM as one of many insurers in the state that encourage repair shops to use aftermarket parts whenever possible. Senior management at WM asks the risk manager to assess the potential reputation risk from the article. The risk manager works with data scientists to mine news articles and social media for any mention of WM's association with aftermarket parts over the last 24 hours. Which one of the following types of analysis will the risk manager attempt to do once the data is collected? A. Cluster analysis B. Sentiment analysis C. Root cause analysis D. Regression analysis

B

Which one of the following is a pre-loss action for the flood cause of loss? A. Mechanical equipment should be cleaned B. Stock disaster supplies C. Board and tape doors and windows D. Initiate salvage operations

B

Which one of the following is a specific duty of a fiduciary supported by the Employee Retirement Income Security Act? A. Obtain Certified Public Accountant-level training B. Carry out duties with the diligence of a prudent person C. Administer the investment plan assets D. Be a beneficiary of plan

B

Which one of the following is considered the most effective loss control method against potential losses from computer hackers? A. Cyber insurance B. Computer passwords C. Disclaimers D. Hold harmless agreements

B

Which one of the following statements about risk management monitoring and reporting is true? A. The silo reporting approach gives the board a more concise and useful picture than the integrated reporting approach. B. The most important characteristic of a risk report format is that it is useful to the user. C. Risk reporting should give each risk faced by the organization equal treatment and avoid prioritizing risks. D. Risk reports should be limited to objective information and not include subjective assessments.

B

Which one of the following is a legal and regulatory concern when personal information is obtained from public sources? A. Fraud B. Volume C. Veracity D. Privacy

D

Which one of the following statements about the balance sheet is correct? A. The balance sheet contains important financial information about net worth and assets, both which indicate the source of an organization's funding. B. Net worth is positive whenever the value of assets exceeds the value of liabilities and negative if the value of liabilities exceeds the value of assets. C. The balance sheet must always balance, but an exception is that the balance sheet will not balance if net worth is a negative number. D. Change in asset and liability valuation from historical cost to fair value has no effect on the value of shareholders' equity.

B

Which one of the following statements best describes the shareholders' equity section of the balance sheet? A. Shareholders' equity decreases by the amount of debt satisfied during the year. B. Shareholders' equity is negative when liabilities exceed assets. C. Shareholders' equity is an asset of the business entity. D. Shareholders' equity is negative when the entity reports a net loss for the year.

B

An organization's premises and operations liability losses have a severity distribution with a mean of $10,000 and a standard deviation of $15,000. What is the coefficient of variation for this distribution? A. .60 B. .67 C. 1.5 D. 1.67

C

Shawn, a stock analyst, is analyzing a company. The book value of the company's assets is $780 million, and the book value of company's liabilities is $440 million. Shawn believes the market value of the company's assets is $860 million, the market value of the liabilities is $420 million, and the company's economic capital is $400 million. Based on this information, the company's excess capital is A. $20 million. B. $40 million. C. $340 million. D. $440 million.

B: Market value surplus is economic capital plus excess capital. Market value surplus is $440 million and economic capital is $400 million, so the excess capital is $40 million

A new coffee company based in Indonesia has found a demand for its product in North America. As such, it has established three locations in the United States and one in Canada. The Board of Directors has concerns about the 'farm to fork' concept being it is sending product many miles from Indonesia to North America. As a result, the board has highlighted a few concerns that could be showstoppers for a successful North American product launch. They have determined that their biggest internal exposure is employment issues as North American companies function differently than those in Indonesia. On the external front, they have circled political/regulatory risk as the biggest hurdle to a smooth operation. What are two mitigation techniques that would help quell their concerns on having a smooth supply chain management system to North America? A. Diversify locations and diversify suppliers. B. Consult with suppliers to expand production sites and use legal contacts to provide protection. C. Educate staff on human resource management and monitor the governmental environments where the businesses operate. D. Update the business continuity plan and guarantee that insurance contracts are up to date.

C

An organization's risk manager can better target a response to a crisis by A. Increasing the spread of negative sentiment through term frequency. B. Viewing stakeholders as good corporate citizens. C. Considering the combination of local variables and network variables in a social network.

C

Because fault tree analysis identifies the events leading to a harmful event, it naturally suggests A. Human error. B. Natural disasters. C. Loss prevention measures.

C

Certain types of property losses such as drought, flood, and earthquake are referred to as natural because A. There is no way to reduce its impact. B. It has a clear beginning and end. C. It is beyond human control. D. There is no way to mitigate the damages.

C

Defamation is A. An unauthorized release of confidential information. B. An intrusion on solitude or seclusion. C. A false written or oral statement that damages another's reputation. D. A public disclosure of private facts.

C

Infection, radiation poisoning, and asbestos exposure can cause A. Relapse. B. Accidents. C. Illness. D. Injury.

C

Mike is the new risk manager for ABC Web Hosting, LLC. ABC develops and hosts Web sites for many different organizations. Mike took over the risk manager position from Tom, who was let go for poor performance. XYZ Retailer was one customer for whom ABC built a Web site. Recently, XYZ Retailer accused ABC of not building a secure site. As a result of the site not being secure, XYZ Retailer claims that its sales have decreased dramatically. XYZ also contends that the personal information of many of its customers was compromised and, now, XYZ is being sued by a group of its customers for not doing a better job of protecting their personal information. Now XYZ Retailer is suing ABC Web Hosting, LLC. Two noninsurance risk transfer methods ABC could have used as a means of risk financing are A. A risk survey and a hold-harmless agreement. B. A large deductible insurance policy and a risk survey. C. A hold-harmless agreement and a liability disclaimer. D. A risk survey and a liability disclaimer.

C

Regional Airline Company's computer network was hacked. As a result of the cyber attack, the system was down for 20 hours. Passengers and customers were unable to access the company's website. When the website came back on-line, those who visited the site received an e-mail titled, "Sorry for Interruption, Let Us Make it Up to You." The hacker had arranged to send the e-mail apology. Those who opened the e-mail had a virus downloaded to their computer. For those passengers and customers who experience a loss due to the virus, the third-party cyber liability claim would be based on A. Liability for breach of contract. B. Directors and officers liability. C. Network security liability. D. Trading partner liability.

C

The Life Safety Code requires that many buildings or structures should have A. A minimum of one means of egress. B. Doorways not leading to exits. C. Fire alarms. D. Exits that rely on a single safeguard.

C

Tom Werkmann has been named risk manager for Metroville, a small Midwestern town. In order to address municipal human resource risk, Werkmann will have to review and address A. Wrongful termination. B. Work stoppages. C. Retirement and resignation. D. Economic cycles.

C

Traunton Manufacturing is considering a new manufacturing process that involves the use of a highly explosive chemical. After much analysis, Traunton abandons the idea in favor of a process that does not use the chemical. The risk control technique Traunton has chosen to address the human resource risk is A. Separation. B. Loss reduction. C. Avoidance. D. Loss prevention.

C

The chief financial officer of XYZ Insurance Company believes that $50 million is the appropriate capital charge for the company's underwriting division. The division is predicted to generate revenue of $25 million this year and expenses of $22 million. Assuming a risk-free rate of 2% on the capital charge, what is this division's return on capital (ROC)? A. 4.00% B. 6.67% C. 8.00% D. 10.20%

C: (Revenue - Expense + Income from capital) ÷ Capital Charge; [$25,000,000−22,000,000 + (.02 x $50,000,000)] ÷ $50,000,000 = .08

When using the Supply Chain Resilience Assessment Model (SCRAM), which one of the following is a supply chain capability? A. Agility B. Asset management C. Capacity D. Connectivity

C: Connectivity is considered a supply chain vulnerability, while capacity is considered a capability. Agility is considered a performance attribute when using the SCOR model.

A predictive model is applied to a clothing manufacturer's data of 1,000 employees, 50 of whom had workplace injuries in the past year. The table below shows how often the model correctly and incorrectly predict for each employee "yes, will have an accident" or "no, will not have an accident." What is the precision of the workplace injury predictive model? A. .800 B. .842 C. .889 D. .985

C: TP ÷ (TP + FP); The precision of the workplace injury predictive model is calculated as 40 ÷ (40 + 5) = .889

A 35-year-old female was employed at a company for five years. During her term of employment the company began having financial difficulty and determined that they needed to layoff 5 of its 125 employees in order to stay in business. The company laid off the female employee and 4 other female coworkers. All of the women had a history of receiving positive employee evaluations. The laid-off workers filed a claim against the company alleging discrimination. Which one of the following best describes the basis of the employment practices claim filed against the company? A. Sexual harassment B. Retaliation C. Age discrimination D. Wrongful termination

D

A first party can incur network security liability when its database is breached if it damages a third party's network as a result of A. Content that infringes another party's trademark being placed on a website. B. Content that infringes another party's copyright being placed on a website. C. Libelous content being placed on a website. D. Malicious code being transmitted to the third party's network.

D

A matrix of the likelihood and potential impact consequences of the organization's risks is called a A. Risk analysis. B. Risk register. C. Risk identification. D. Risk map.

D

A risk manager wants to measure the potential social media influence of a negative posting. Which one of the following centrality measures is used to measure the number of connections the poster has? A. Betweenness B. Reach C. Closeness D. Degree

D

Big City Bank restricts Internet usage by bank employees to "bank business only." The bank is concerned that social network users and others accessing the web may introduce computer viruses and malware to the bank's computer network. Safeguarding private data is a major concern for the bank as they have depositor's account numbers, PINs, bank records, and social security numbers. The risk to the bank posed by malicious software and computer viruses is A. An employment risk. B. An intellectual property risk. C. A reputational risk. D. An operational risk.

D

Blockchain supports supply chain management by A. Allowing managers to run computer simulations of the potential impact of different types of disruptions. B. Identifying where a product or its components are or have been. C. Alerting managers in real time of conditions that need to be addressed. D. Providing common, authoritative, and immutable records of transactions for all participants in a chain.

D

Creative Catering has a 15 year old vehicle that was originally built to prepare and serve sandwiches and drinks at various outdoor functions such as car shows, sporting events, etc. The vehicle is of low value but it generates approximately $100,000 a year in sales. The risk management professional will primarily be concerned about its A. Reproduction cost. B. Market value. C. Functional replacement cost. D. Economic value.

D

Cromley Manufacturing is a manufacturer of natural dog food. When the company was started 10 years ago, there were a limited number of suppliers of the natural ingredients that Cromley used in its products. Over the years, a number of new suppliers of the natural ingredients have approached Cromley but management has remained loyal to its original supplier. This management decision has left Cromley exposed to which one of the following supply chain vulnerabilities? A. Production bottleneck B. Change in demand level C. Sole source supplier D. Single source supplier

D

One category of operational risk includes procedures and practices organizations use to conduct their business activities. This category is A. Systems risk. B. Business complexity risk. C. Technological risk. D. Process risk.

D

This graph illustrates a probability distribution. The horizontal axis illustrates possible outcomes, and the vertical axis shows the probability of each. Which one of the following statements is true regarding the information presented in this graph? A. It represents a continuous probability distribution. B. The most frequently occurring value is .17. C. The sum of the estimated probabilities for all possible values is 77. D. The most frequently occurring value is seven.

D

When it comes to social media, which one of the following is key to managing reputational risk? A. Monitoring Facebook B. Risk appetite C. Computer-security practices D. Quick reaction

D

Which one of the following is a way that insurers and risk managers can use data science to improve their results through data-driven decision making? A. Providing human analysis of data B. Using industry data in addition to the organization's own data C. Determining prior year losses at a particular location D. Discovering new relationships in data

D

Which one of the following is an advantage of "5 Whys" analysis? A. As it is a quantitative method, the result is a precise mathematical measure, complete with confidence levels. B. It uses the statistical data that has been collected. C. If the investigator asks an irrelevant question, the analysis ends without additional follow-up questions. D. When several root causes are found, it can help determine the relationship among them.

D

Which one of the following is the premise underlying a profound reorientation in thinking about supply chain management in the twenty-first century? A. The premise is that supply chain disruptions can be completely avoided by identifying and controlling vulnerabilities. B. The premise is that as supply chains become less complex and sophisticated, they will also become less brittle and subject to disruptions. C. The premise is that supply chain disruptions can be eliminated by observing how competitors deal with adverse conditions. D. The premise is that a supply chain within a network of suppliers, processors, distributors, and consumers will be disrupted at some point.

D

Which one of the following statements is correct with respect to continuous probability distributions? A. They are most effectively illustrated using tables and pie charts. B. They are typically used for loss frequency analysis rather than severity analysis. C. There are a finite number of possible outcomes in a continuous probability distribution. D. One way of presenting a continuous probability distribution is to divide the distribution into a countable number of bins

D

Which one of the following statements is correct with respect to empirical probability distributions? A. Any given event can fall into one or more categories of event (bins). B. Event categories (bins) are designed so that only the most probable events are included. C. The sum of all empirical probabilities in a distribution can be any number. D. They provide a mutually exclusive, collectively exhaustive list of outcomes.

D

Which one of the following statements is true regarding operational risk? A. Most current methods of managing operational risk are informal. B. Financial institutions and their regulators typically define operational risk to include market risk and credit risk. C. Operational risk is best managed during the course of business by an organization's front-line managers. D. Operational risk is integrated in every activity of an organization.

D

Wrongful termination claims can sometimes allege implied employment contracts arising from which one of the following types of documents? A. Code of Conduct B. Mission Statement C. Vision Statement D. Employee Handbook

D

Diversified Products Company (DPC) is considering adding a new product line. DPC requires such ventures to provide a risk-adjusted return on capital of 14%. The new product line is expected to generate revenues of $40 million and expenses of $10 million. The pure risk charge for this product line will be $2 million, and the risk-free rate is 4%. How much economic capital would have to be allocated to this new product line to earn a risk-adjusted return of 14% on this investment? A. $120 million B. $160 million C. $220 million D. $280 million

D: 14% = [$40,000,000 − $10,000,000 − $2,000,000 + (.04 x $280,000,000)] ÷ $280,000,000 RAROC = (Revenue - Expense - Expected Loss + Income from capital)/economic capital

ABC is a small, regional brewery that has recently revised its entire operation following a devastating fire at its plant. In restoring the plant to its full operating capacity, ABC's management installed a computer-control system that centralizes and automates many of the business and manufacturing functions that were once done by employees. The new computer system monitors the temperature of the beer brewing in the vats, orders additional barley from the agricultural supplier when inventory is depleted, receives shipments, and invoices customer product orders. As a result of the new system, ABC expects to cut costs by more than 40% this year, primarily by reducing the number of employees from 200 to 70. However, in addition to cutting costs, the innovative new system has created new loss exposures for ABC as well. Which one of the following statements best describes a cyber risk-related net income loss for ABC? A. If the computer system goes down, ABC will not be able to manufacture and sell its product B. ABC might be sued by disgruntled workers who were replaced by the new system. C. If the computer system is compromised by hackers, ABC could wind up manufacturing a vat of toxic product. D. If there is another fire, ABC may have to replace the new computer system.

A

After one employee was involved in several workplace accidents, the risk manager and the industrial safety engineer concluded that these resulted from ancestry and social environment of the person. Which one of the following accident causation theories or approaches considers this an accident factor? A. Sequence of events theory B. Job safety analysis C. Technique of operations review D. Energy transfer theory

A

An employee benefit plan fiduciary has a duty loyalty, meaning that A. The fiduciary's actions must be solely in the best interests of the plan and all of its participants and beneficiaries. B. The fiduciary must ensure that the plan's investments are sufficiently diversified to minimize the risk of large losses. C. The fiduciary must act according to the plan documents and applicable law. D. The fiduciary must carry out the duties with the care, skill, prudence, and diligence of a prudent person familiar with such matters.

A

An important liquidity measure for a business is its working capital. Working capital is equal to A. Current assets minus current liabilities. B. Total assets minus current assets. C. Total assets minus total liabilities. D. Owners' equity minus current liabilities.

A

An individual owns a web-based business. All sales records and contact data are maintained on the same network server as the website. Someone hacks into the server and deletes all of the saved data. Which one of the following types of loss is this? A. Intangible property B. Personal injury C. Tangible property D. Contingent business income

A

Granton Manufacturing uses diamond-point cutting tools to manufacture metal plates. The diamond points have an average life of 90 days. Some points last longer and others wear out more quickly; however, overall the average life of the diamond points follows a normal distribution curve with each standard deviation equaling 10 days. Replacing a point requires only 15 minutes. However, if a point fails, Granton often must scrap some of the metal plates, and the process to return to full operations takes over two hours. What percentage of points is likely to wear out only after 110 days? A. 2.28% B. 13.59% C. 34.13% D. 97.72%

A

Mitch has been an underwriter at Regional Insurance Company for several years. He has always been attracted to one of the file clerks named Debbie. One year on his birthday, Mitch approached Debbie in the file room and asked for a "birthday kiss." Debbie said "no" and laughed it off. Unfortunately, Mitch persisted and became more and more aggressive in his pursuit of the "birthday kiss." Debbie complained to her supervisor, Louise, about the incident with Mitch. Debbie also contended that Mitch has said several things to her over the years and that Louise knew about it but didn't do anything, saying that "Mitch is harmless and wouldn't hurt a fly." Debbie claims sexual harassment and quits her job. She then sues Regional Insurance Company stating that she could no longer work there under the current "working conditions." What is the term for the "working conditions" to which Debbie was referring? A. Hostile work environment B. Unwelcome advances C. Interference with job responsibilities D. Inability to earn a living

A

On a local television program, a financial reporter stated, "There will be big news this week about Sixth National Bank's bad real estate development loans. Unless they get acquired soon, the bank will be broke." The next morning, long lines of depositors waited outside of each Sixth National Bank branch. When the branches opened, depositors began withdrawing their funds. Sixth National Bank did not have enough funds to pay all the depositors and had to close early, which only further compounded the problem. Which one of the following financial risks is Sixth National Bank facing by not having enough cash on hand to meet the immediate demand? A. Liquidity risk. B. Default risk. C. Exchange rate risk. D. Credit risk.

A

The first step in the risk management process for reputation risk is to A. Identify and evaluate reputation risks. B. Develop and implement reputation risk responses. C. Monitor the risk and report changes to the appropriate party. D. Prioritize the reputation risks the organization faces.

A

The objective of the Supply Chain Resilience Assessment Model (SCRAM) is to A. Identify a zone where specific resilience measures are economically capable of preserving and creating value. B. Direct an organization's investment in resilience to where its capabilities are overwhelmed by a vulnerability. C. Avoid any disruption to an organization's network of suppliers, processors, distributors, and consumers D. Allow companies and units to collaboratively identify, assess, and improve supply chain performance.

A

The second step in the root cause analysis (RCA) process is charting the agents that directly result in one event triggering another event. In RCA, these agents are called A. Causal factors. B. Hygiene factors. C. Precedence factors. D. Stimulus factors.

A

The weighted average of all the possible outcomes of a theoretical probability distribution is the A. Expected value. B. Median. C. Mode. D. Dispersion.

A

Which one of the following best describes a cause of a personnel-related loss exposure? A. Resignation B. Disability of a child C. Peril D. Death of a family member

A

Which one of the following describes the law of large numbers? A. It states that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes also increases. B. It states that, in order to be able to predict the relative probability of future events, those events must be both frequent, and independent of one another. C. It states that events that have occurred in the past under identical conditions and resulting from unchanging causal forces will increase at a predictable rate into the future. D. It states that the more times a particular event has occurred in the past, the greater the likelihood of that same event occurring in the future.

A

Which one of the following descriptions best applies to Monte Carlo Simulation? A. A computer-based method of analyzing possible outcomes based on a specific set of variables. B. A computer-based method used to perform a single complex computation. C. A computer-based technique used when an analyst is able to assign a specific value to each variable under analysis. D. A computer-based technique that is used to determine which variables are the most important in determining outcomes.

A

A risk manager for a grocery store wants to see if there is a correlation between the frequency of customer slip and fall accidents, and the time of day. Which one of the following is a relatively simple data analysis technique that the risk manager could use to determine this correlation? A. Bubble plot B. Cluster analysis C. Classification tree D. Regression analysis

A: The risk manager could use a bubble plot to provide a two-dimensional plot that represents the correlation between the two attributes

According to the Power/Interest Matrix for Prioritizing Stakeholders, what is the best course of action for dealing with stakeholders who have low interest in the organization and high power over the organization? A. Keep them informed B. Keep them satisfied C. Extend maximum effort towards them D. Extend minimum effort towards them

B

Ace is an electronics firm that manufactures small circuit boards that are used in cell phones. One of Ace's major customers is XYZ Phones, accounting for 70% of total sales for Ace each year. XYZ uses a just-in-time inventory system and orders circuit boards through an on-line system that creates a direct connection between XYZ and Ace. Last week, XYZ was subjected to a denial-of-service cyber attack which shut down XYZ's computer system for several hours, which led to ordering delays that took nearly a day to sort out. Which one of the following statements best describes Ace's cyber risk exposure to this situation? A. Ace has an exposure to loss to tangible property. B. Ace has a contingent business income exposure. C. Ace has a personal and advertising injury liability exposure. D. Ace has a property damage liability exposure.

B

An email was sent to a company's employees containing a harmful attachment. Several employees opened the attachment which allowed hackers to obtain customer contact information. This cyber risk loss is A. Damage to tangible property. B. Damage to intangible property. C. Damage to personal property. D. Errors and omissions liability.

B

An organization implements a new procedure that requires employees who travel to take different flights rather than traveling together. This is an example of which one of the following risk control techniques for this human resource risk? A. Avoidance B. Separation C. Loss reduction D. Duplication

B

One difference between theoretical probability distributions and empirical probability distributions is that for empirical probability distributions the A. Outcomes are not necessarily collectively exhaustive. B. Probabilities may change as new data are discovered. C. Results are always expressed as a percentage. D. Outcomes are not necessarily mutually exclusive

B

One of the four characteristics that affects an individual's susceptibility to injury or death from a building fire is A. Control or discipline. B. Awareness of the fire. C. Density. D. Crowding.

B

One of the ways in which probabilities can be developed is theoretically. Which one of the following is an example of an event for which probability can be determined theoretically? A. The number of products liability lawsuits that can occur over a particular period of time B. The number of times heads can be expected to turn up over multiple coin tosses C. The number of automobile accidents that can be expected in the upcoming year D. The number of 60-year-old men expected to die in a particular year

B

Outlining unacceptable cyber behavior with associated consequences is an example of A. A managed control. B. A personnel control. C. A physical control. D. An operational control.

B

Parker Panels is a manufacturer of solar energy panels. It relies on a global network of suppliers for the components that go into the panels. In an environment of intensified competition, Parker Panels seeks to eliminate redundant and underused resources. With a large network of suppliers and frequent changes in contract relationships, managing the payment risk is also a challenge. Internal audits revealed more than one occasion when Parker Panels paid for component parts that were never received. Which one of the following technological tools would help Parker Panels manage its payment risk and improve its supply chain risk management? A. Track and trace technology B. Blockchain-empowered smart contracts C. Sensors and actuators D. Radio frequency identification tags

B

Springer's Garden Centers has five locations in Pennsylvania. Many of its plants are transported from the West coast. A late winter snow storm in Denver and flooding in the mid-western U.S. caused major disruptions to the transportation system. Multiple suppliers are affected. With the Easter holiday and spring planting season approaching, Springer's Garden Center is concerned that it will suffer a significant financial and reputational loss if the plants do not arrive within the next week. Which one of the following would help Springer's Garden Center manage this supply chain risk? A. Blockchain technology B. Track and trace technology C. Diversified suppliers D. Legal contracts

B

The relationship between the expected value and the standard deviation of a normal distribution can have useful practical application. Which one of the following best describes such a practical application? A. Selecting which risk management technique would be most appropriate for a particular loss exposure B. Determining a maintenance schedule for equipment that could become dangerous if it were to fail C. Predicting when losses, such as physical damages losses to an automobile fleet, are likely to occur D. Identifying whether a particular loss exposure is high-frequency and low-severity, or high-severity and low frequency

B

The risk management department at Computer Hardware Company uses risk maps to graph and analyze the risks faced by the company. One area of special concern to the risk management team is the difference between residual risk and optimum risk. This difference represents A. The risk that cannot be altered and is retained by the firm. B. The risk treatment opportunity to further reduce risk. C. The risk that is handled, by default, through avoidance. D. The potential risk that the organization does not currently face, but could face if conditions change.

B

The use of risk quadrants to identify and categorize risk can provide a framework for risk identification. One quadrant includes such risks as loss of production due to a key supplier not delivering raw materials or a mechanical breakdown of equipment. This risk quadrant is A. Strategic risk. B. Operational risk. C. Financial risk. D. Hazard risk.

B

To apply a modeling algorithm to text, A. The number of times a term appears in each document must be counted. B. The text must be put into a form that the algorithm can recognize, such as by giving it numerical values. C. Inverse document frequency must be measured and flagged. D. Each term or each column in a table is considered to be an attribute.

B

Which one of the following statements is true regarding characteristics of normal distributions? A. In theory, the normal distribution assigns some negative probability no greater than zero for every outcome. B. When graphed, a normal distribution generates a bell-shaped curve. C. Insurers cannot use normal probability distributions to predict future losses but they are able to use them to control or mitigate future losses. D. The normal curve touches the horizontal line at the base of the distribution at only two points.

B

Which one of the following statements is true regarding the nature of probability? A. Empirical probability distributions are constant as long as the physical conditions that generate them remain unchanged. B. Probabilities deduced solely from historical data may change as new data are discovered or the environment changes. C. The type of probability most commonly used by risk management professionals is theoretical probability. D. Theoretical probabilities are only estimates whose accuracy depends on the size and representative nature of the samples considered.

B

Which one of the following statements regarding social media and employment risk is true? A. An employee may be fired if the employee complains to another employee on a social media site about wages and working conditions. B. Hiring decisions based on information obtained online about an individual's age, race, or religion may be discriminatory and violate the law. C. Employers are forbidden from using any information from social network sites or web searches when evaluating a prospective employee. D. Employers are prohibited from using information obtained from a social media site even if the information relates to behavior that would impact an applicant's job responsibilities.

B

Which one of the following types of personnel losses usually develops more slowly as the result of some organic or inorganic agent being absorbed, ingested, inhaled, or injected that impairs a function of the body? A. Exposure B. Illness C. Injury D. Infection

B

Pacific Fuel Company stores refined gasoline in a large underground storage tank, which is encased in a second tank, called a "double hull." Pacific Fuel's risk manager, Merrill, is concerned that fuel could leak from the tank and pollute the ground. To analyze this risk, he constructed an event tree. He believes there is a 40% probability that there will be a leak in the tank in the next five years and, if a leak occurs, he believes there is an 80% probability that the second hull will contain the leak. If the second hull does not contain the leak, he believes there is a 70% chance of severe pollution and a 30% chance of minor pollution. What is the probability of severe pollution from the tank occurring in the next five years? A. 2.40% B. 5.60% C. 9.60% D. 22.40%

B: .40 x .20 x .70 = 5.60%

Devon Company has noticed that the number of workers compensation claims each year at the company is normally distributed. If the predicted value of workers compensation claims for next year is 320 with a standard deviation of 30, what is the expected probability that between 290 and 350 workers compensation claims will occur? A. 50.0% B. 68.3% C. 95.4% D. 99.7%

B: 34.13% of all outcomes are within 1 standard deviation above the mean and 34.13% of all outcomes are within 1 standard deviation below the mean

A risk manager for an organization has proposed a meeting to ask a series of "What if?" questions to project the consequences for implementing alternative processes under consideration. Which one of the following system safety analysis techniques is the risk manager proposing? A. Technique of operations review approach B. Job safety analysis C. Change analysis D. Sequence of events theory

C

A risk map showing a large difference between inherent and residual risk indicates which one of the following? A. The risk is within the organization's risk appetite B. The current risk treatment is ineffective C. The current risk treatment is effective D. The risk does not need to be treated

C

A year ago, Durham Insurance began using Classic Body Works (CBW), rather than its own claim adjusters, to perform appraisals for auto damage claims. Durham has collected feedback on CBW from policyholders over the year. The insurer would like to use text mining to analyze the unstructured data and see if the overall opinion of CBW is positive, negative, or neutral. This type of analysis is known as A. A semantic network. B. Poisson distribution. C. Sentiment analysis.

C

According to the technique of operations review approach, one category of fault of an organization's management is A. Inherited psychological disorders. B. Fault of person. C. Failure to take responsibility. D. Unsafe act.

C

Cyber crime can be controlled through the use of effective loss prevention and loss reduction strategies. Which one of the following loss prevention strategies is considered the most effective against cyber criminals? A. Offsite data backup storage B. Virus protection software C. Controls and limitations on system access D. Encryption systems

C

Directors and officers of a corporation have fiduciary duties, which include the duty of being A. Inquisitive. B. Honest. C. Loyal. D. Trustworthy.

C

Disaster recovery plans for windstorms should reflect not only weather conditions, but also the difference in A. Organizational hierarchy. B. Channels of communication. C. Warning times. D. Management.

C

During the process of training a predictive model, overfitting occurs when A. Data is held out from the training data. B. The model applies generalization. C. A model is overly tailored to the training data. D. The data has known values for the target variable.

C

Economic capital is based on a concept that measures the expected loss exceeding a threshold level during a given time period. This concept is called A. Cost of capital. B. Market value surplus. C. Value at risk. D. Book value.

C

Fatima is the risk professional for Courtland Incorporated. She is evaluating several emerging risks to the organization. This requires her to collaborate with external subject-matter experts and internal subject-matter experts. Which one of the following internal experts would likely be most concerned with the information Fatima received from an external climate change expert? A. Production manager B. Chief executive officer C. Facilities manager D. Information technology manager

C

Fault tree analysis provides guidance in choosing among loss prevention alternatives. An "and" gate connecting events in rectangles C, D, and E to the event in rectangle A indicates which one of the following? A. The event in rectangle C must be prevented in order to prevent the events in rectangles D and E from occurring. B. The event in rectangle C must be prevented in order to prevent the event in rectangle A from occurring. C. Preventing the event in rectangle C, D, or E from occurring will prevent the event in rectangle A from occurring. D. The events in rectangles C, D, and E must all be prevented in order to prevent the event in rectangle A from occurring.

C

Global Products Company (GPC) markets its products on television. GPC purchased cyber liability coverage from XYZ Insurance Company. Melody Franklin saw a product advertised by GPC. She called the toll-free number, ordered the product, and used her credit card for the purchase. The following day, GPC's computer network was hacked. The hacker obtained Melody's credit card number and quickly charged over $5,000 of merchandise on the credit card. In this scenario demonstrating potential third party liability, who is considered the third party? A. XYZ Insurance Company B. Global Products Company C. Melody Franklin D. The hacker

C

Goshen Insurance is developing a predictive model to determine the likelihood that newly licensed drivers will have an accident within the first two years of receiving a license. Goshen has data on 500 new drivers. A predictive model based on 400 drivers shows a strong correlation between drivers under age 18 and accidents in the first two years. Before using the model for underwriting purposes, Goshen Insurance runs the data on the remaining 100 drivers through the model to confirm that the correlation is significant. The data on the remaining 100 drivers is known as A. Training data. B. Cross fit data. C. Holdout data. D. Production data.

C

In flipping a coin, each of the two possible outcomes, heads or tails, has an equal probability of 50%. Because on a particular flip of a coin, only one outcome is possible, these outcomes are A. Collectively exhaustive. B. Empirical. C. Mutually exclusive. D. Skewed.

C

Owners' equity represents the capital contributed by an organization's owners plus the organization's A. Treasury stock. B. Net worth. C. Retained earnings. D. Net assets.

C

Partridge Office Supplies has a history of theft losses as follows: A. Theoretical probability analysis. B. Empirical probability analysis. C. Trend analysis. D. Standard deviations.

C

Sara's online marketplace website is quickly gaining popularity. Sara's website shares the same logo as a little known but long-established web-based company. The smaller web-based company is threatening to sue Sara unless she changes her website's logo. This is an example of which one of the following cyber risk loss exposures? A. Errors and omissions liability B. Personal and advertising injury liability C. Intellectual property liability D. Property damage liability

C

Sixth National Bank stores all of its financial records in an electronic data base. Sixth National customers are able to access their accounts on-line with a user identification number and a password. Last weekend, a computer hacker was able to breach the firewall of the electronic database and gain access to customer account data. This operational risk for Sixth National Bank is A. An external event risk. B. A credit risk. C. A systems risk. D. A process risk.

C

Some buildings have modest economic value but still have high replacement costs. One prime reason for this might be because of A. Condemnation proceedings. B. Construction styles that are simple and modest. C. Construction styles that are large or ornate. D. Declining tax assessments on valued property.

C

Specialized risk control measures are necessary for an organization to control cyber risk loss exposures. Which one of the following risk control measures would be most effective at preventing cyber risk-related losses such as the theft of customer credit card data? A. High limits cyber insurance with a coordinated deductible plan B. Notification of law enforcement officials when unauthorized entry to the computer system is detected C. Managerial controls such as monitoring compliance with the security plan D. Post-cyber incident rapid recovery program

C

The board of directors of Insurance Company wants assurance that the company's recently-instituted "commitment to risk management" has been communicated to and accepted by all company employees. Which one of the following would be the best method to determine if employees had been informed of the commitment to risk management and had accepted it? A. Ask senior management to prepare a report on the subject. B. Check employee absenteeism before and after the policy was instituted. C. Ask the internal audit department to administer a risk management questionnaire to employees. D. Use a measure such as sales per employee or net income per employee to track performance.

C

The risk management professional for a local municipality is concerned that the community's ability to fight fires would be diminished if the fire house and its fire engines were destroyed. On what basis might the risk management professional value the fire engines if resumption of service was her primary goal? A. Book value B. Historical cost C. Replacement cost value D. Market value

C

The risk that the value of an investment or a portfolio of assets will increase or decrease in value due to the supply and demand for that investment is called A. Credit risk. B. Pure risk. C. Market risk. D. Price risk.

C

The unauthorized intrusion into a company's computer network resulting in damage to intellectual property is best classified as which one of the following types of cyber liability exposures? A. Loss of business income B. Loss of use C. Intangible property D. Tangible property

C

When risk-adjusted capital is allocated using a top-down system, which one of the following occurs? A. Capital is calculated and assigned at each individual activity level. B. Capital is allocated based on the estimated economic value of each unit or activity without regard to risk. C. Capital is determined at a firm-wide level and then allocated based on the riskiness of the activity. D. Capital is allocated based on the risk-adjusted estimated profitability of each unit or product.

C

Which one of the following best describes disparate treatment? A. Indirect discrimination against a group B. A type of employee benefit loss exposure C. Unfavorable or unfair treatment of someone in comparison to other similar individuals D. A specific observable action to discriminate against a person or class of persons

C

Granton Manufacturing uses diamond-point cutting tools to manufacture metal plates. The diamond points have an average life of 90 days. Some points last longer and others wear out more quickly; however, overall the average life of the diamond points follows a normal distribution curve with each standard deviation equaling 10 days. Replacing a point requires only 15 minutes. However, if a point fails, Granton often must scrap some of the metal plates, and the process to return to full operations takes over two hours. What percentage of diamond points are likely to wear out before 80 days? A. 0.13% B. 2.15% C. 15.87%

C: The percentage of diamond points that are likely to wear out before 80 days is 15.87%. 80 days = −1 standard deviation; the area on the normal distribution below −1 is .13 + 2.15 + 13.59 = 15.87.

A banking organization is attempting to control cyber risks to their online banking site by all means necessary. A procedural control option for them is A. Training of employees on attitudes and behaviors to prevent loss. B. Centralizing responsibilities for cyber security by appointing a chief information officer. C. Implementing a biometrics security feature for key personnel. D. Using firewalls, antivirus software, and data encryption.

D

A corporation owned by its shareholders is controlled by its A. Proxies. B. Management. C. Board of Advisors. D. Board of Directors.

D

A risk management professional should ensure that an organizational risk register has which one of the following characteristics?A risk management professional should ensure that an organizational risk register has which one of the following characteristics? A. Prioritizes risk based on historical losses B. Includes only the most severe risks C. Compiles documents from multiple projects D. Provides interactive use for risk owners

D

A specific observable action to discriminate against a person or class of persons is A. Overt impact. B. Disparate impact. C. Disparate treatment. D. Overt discrimination.

D

An employee benefit plan fiduciary has a duty of prudence, meaning that A. The fiduciary must act according to the plan documents and applicable law. B. The fiduciary's actions must be solely in the best interests of the plan and all of its participants and beneficiaries. C. The fiduciary must ensure that the plan's investments are sufficiently diversified to minimize the risk of large losses. D. The fiduciary must carry out the duties with the skill, prudence, and diligence of a prudent person familiar with such matters.

D

An example of a post-loss action for the windstorm cause of loss is A. Providing storm shutters and blinds. B. Designing building and structures to withstand anticipated wind loads. C. Securing materials and equipment. D. Patrolling premises to prevent looting or vandalism.

D

Directors and officers of a corporation owe special duties to the stockholders of that corporation. Those duties include: the duty of care; the duty of loyalty; the duty of disclosure; and the duty of obedience. What is the term used to describe these duties? A. Legal B. Moral C. Ethical D. Fiduciary

D

Do-It-Yourself (DIY) is a chain of building material and home repair stores located in the Southeastern part of the United States. DIY always experiences a "run" on sheets of plywood and generators whenever hurricanes occur. Customers also want fuel and bottled water when they come to DIY after hurricanes. To speed the process of getting necessary products to stores with the greatest need, DIY entered into a contract with a supplier that will ship extra products overnight to stores close to where a Category 3 or higher hurricane is expected to make landfall. DIY uses forecast data from the National Weather Service. So far, the results have been favorable. DIY's standing order to have products sent to its stores when hurricane losses are imminent is an example of a A. Robotic process automation. B. Contingent capital arrangement. C. Risk management information system. D. Smart contract.

D

Earthquake-resistant construction, used in buildings under three stories tall, that integrates roof and floor diaphragms that can flex to transmit and distribute the forces an earthquake exerts on a structure, is called A. Frame action design. B. Diaphragmatic design. C. Rolling weight-bearing design. D. Box action design.

D

Economic capital attempts to quantify the various risks faced by an organization. One such risk is loss of value because of not properly matching asset and liability cash flows. This risk is called A. Credit risk. B. Operational risk. C. Market risk. D. Liquidity risk.

D

Estimates whose accuracy depends on the size and representative nature of the samples being studied are A. Experimental probabilities. B. Theoretical probabilities. C. Conditional probabilities. D. Empirical probabilities.

D

Jones, Inc. buys grain from local farmers and re-sells the grain to a number of customers. Jones, Inc. has been approached by Snack Cracker Company. Snack Cracker would like to purchase wheat and corn from Jones, Inc. to use in the crackers it produces. Snack Cracker would like to pay for the grain within 30 days of the date the grain is delivered. As Snack Cracker is a new customer, Jones, Inc. asked to review its financial statements. Which balance sheet ratio would best assist Jones, Inc. in determining if Snack Cracker can pay for the grain within 30 days of the sale? A. Debt-to-assets ratio B. Equity-to-assets ratio C. Debt-to-equity ratio D. Current ratio

D

Lily, the director of Green Mountain Summer Camp, was told by her husband that the internet was flooded with stories about the camp. She quickly learned that a camper had advised his parents that there were bedbugs at the camp, and it was all over the internet. While Lily knew that there was no actual report of bedbugs at the camp, she knew that the camp faced great reputational risk. She decided to do a text mining of social media using the camp name and the phrase "bedbugs." Which one of the following is the objective of this initial text mining project? A. Determine how this will affect the balance sheet B. Comply with regulatory requirements C. Determine which camper started the initial rumor D. Perform a sentiment analysis of the social media mentions

D

Maria is a risk management professional trying to analyze workers compensation loss frequency by cause of loss. Which one of the following forms of probability distribution would be most appropriate for her to use? A. Continuous B. Theoretical C. Cumulative D. Discrete

D

When training a predictive model, which one of the following is a reason for cross-validation to be used? A. The model's performance on the holdout data sufficiently reassured its developers that it will perform well in the testing environment. B. The model has performed well on the precision performance metric, which measures only the positive results of the model. C. The model's performance on the holdout data shows that it can apply generalization, which means it has too much complexity. D. A very limited amount of training data is available, and the model's developers think it unwise to not use some of the data for training because of the need for holdout data.When training a predictive model, which one of the following is a reason for cross-validation to be used?

D

Which one of the following categories of operational risk includes many risks which are hazard risks or other forms of insurable risk? A. Process B. External events C. Systems D. People

D

Which one of the following statements regarding probability is correct? A. Risk management professionals use theoretical probabilities because they are generally available for and applicable to claim analysis. B. The probability of an event that is absolutely certain is 0. C. The accuracy of theoretical probabilities depends on the size and representative nature of the samples being studied. D. Probabilities associated with events such as coin tosses can be developed from theoretical considerations and are unchanging.

D

Which one of the following theories of accident causation presumes that accidents are the result of a chain of accidental factors? A. Technique of operations review approach B. Energy transfer theory C. Job safety analysis D. Sequence of events theory

D

An organization has implemented a firewall system to prevent its employees from accessing adult and inappropriate websites. The organization believes this will greatly reduce the threat of a viral or denial of service attack from outside sources. Which one of the following best describes the type of risk control measure implemented? A. Procedural control B. Security control C. Managerial control D. Personnel control

A

Aries Organics is a manufacturer of organic foods and cosmetic products. It has recently experienced customer complaints about a few products. The company has decided to use a risk assessment tool that looks at upstream external factors, internal factors, and downstream external factors. It will analyze the companies supplying ingredients, the quality of the ingredients, how the ingredients are processed into the final products, and how the final products are inspected and distributed. Which one of the following risk assessment tools or techniques is Aries Organics using? A. Process flow analysis B. Risk register C. Fault tree analysis D. Artificial intelligence

A

As part of its assessment of its cyber risk, an organization should consider whether there are any intangible property exposures. Which one of the following would best be classified as an intangible property loss? A. The computer system is hacked and data including credit card numbers are stolen. B. There is a fire in the storage area which destroys the backup copy of the office computer system. C. Two disgruntled employees use the computer system to transfer office funds into their own personal bank accounts. D. Thieves break into the main office and steal several desktop computers.

A

As supply chains extend throughout the world, blockchain-empowered smart contracts allow financial transactions to occur without the need for A. A trusted third party. B. Sufficient funds. C. A contract trigger. D. Mutual agreement.

A

Chuck is Vice President of Claims for Insurance Company. The company has 37 adjusters in the field, and needs to hire four new adjusters. Chuck is curious about the relationship between prior experience of the adjuster and policyowner complaints. He collected data on the number of complaints for each adjuster on staff over time. Then he used a statistical technique to analyze the relationship between adjuster experience and complaints, and the trend of the relationship over time. The statistical analysis confirmed that that there were significantly fewer complaints with more experienced adjusters, and that the relationship grew stronger with more years of experience. The technique Chuck used to relate indicators to outcomes is called A. Regression analysis. B. Analysis of variance. C. SWOT analysis. D. Central tendency analysis.

A

Fredine Manufacturing is a manufacturer of circuit boards for computers. Fredine is on target to deliver a large supply of circuit boards at the end of the month, when a piece of the production machinery breaks down. Fredine learns that the part to repair the machinery is on backorder and will take 10 days to receive. This delay will prevent Fredine from meeting its production deadline. Which one of the following supply chain best practices would help avoid this production disruption? A. Maintain spare parts B. Diversify suppliers C. Maintain appropriate backup protocols D. Monitor the environment in which the organization operates

A

In Fred's large landscaping business, he knows that there is a point where equipment becomes unsafe and difficult to maintain. Fred realizes that after 2,000 miles of use, his costs for maintenance on his large mowers and sod busters dramatically rise. Using probability analysis Fred can better know A. When to replace equipment. B. Which equipment is likely to cause bodily injury to operators or customers. C. What type of equipment is needed for future projects. D. When to schedule routine maintenance.

A

Mike and Jack are research chemists at Wentworth Pharmaceutical. They are working on a top-secret project, a new arthritis drug. On the evening of the day that Mike and Jack made a major breakthrough on the drug, Jack saw this posting on a public bulletin board: "Buy Wentworth Pharma stock...major good news coming soon on arthritis drug. You heard it here first." The post was attributed to "DrugGuy201." Jack knew that Mike was the only other person who could have made the post. He asked Wentworth's compliance department to review the posting. After the investigation, Mike was formally reprimanded by the company and warned that further infractions would result in dismissal. Mike's offense in this case was A. Revealing intellectual property. B. Creating a security risk. C. Revealing employment data. D. Creating an operational risk.

A

When a clothing manufacturer decides to expand the sale of its clothing line by offering internet purchases, it creates new exposures not otherwise covered, or not fully covered, by a traditional policy. These include A. Loss or damage caused by computer viruses. B. Lightning damage to the computer system used for internet sales. C. Theft of clothing items in their store. D. Fire damage to clothing items currently listed for sale online.

A

Which one of the following is a technique that can destroy motivation, rather than build it? A. Promoting competition among units B. Requesting equipment, staff, and other resources needed to support stakeholders C. Seeking stakeholder input when making decisions D. Seeking feedback on yourself from peers, managers, and subordinates

A

Which one of the following is an analysis that dissects a repetitive task to determine potential hazards if each action is not performed? A. Job safety analysis B. Change analysis C. Root cause analysis D. Fault tree analysis

A

Which one of the following statements is true concerning robotic process automation (RPA)? A. Although RPA can help control some organizational risks, use of RPA can create other risks. B. RPA is more focused on the range of tasks that can be performed by a robot rather than the process of completing a task. C. RPA cannot be used as part of business process management. D. When RPA is employed, it always involves the use of robots.

A

An individual may make false disparaging statements that harm another's reputation on social media, such as a personal web page. Such comments may lead to a charge of A. Violation of privacy. B. Defamation. C. Battery. D. Assault.

B

An organization has had a high percentage of repetitive stress injuries to workers in a particular phase of their production process. The risk manager has been asked to analyze these injuries from a system safety analysis perspective. Which one of the following techniques should the risk manager use to investigate these accidents? A. Future states analysis B. Job safety analysis C. Strategy analysis D. Failure mode and effects analysis

B

Bio-Pharma was a highly-regarded pharmaceutical company. That changed last year when it was revealed that Bio-Pharma researchers had fabricated test results of the company's new hypertension drug, and a company official bribed a key regulator to get the drug approved. These revelations led to a sharp decline in sales of all of Bio-Pharma's drugs, a sharp decline in net income, and a decline in Bio-Pharma's stock price. This scenario clearly indicates the value of a corporation's A. Internal security. B. Reputation. C. Intellectual property. D. Patents.

B

Blithe Manufacturing suffered an explosion at one of its manufacturing locations. Fortunately, there were no injuries and Blithe has a business continuity plan in place. During this crisis which one of the following stakeholders should be notified of delivery and payment procedures as soon as possible? A. Stockholders B. Suppliers C. Employees D. Board of Directors

B

Insurance Company monitors key indicators of underwriting effectiveness. Some indicators they monitor include: percentage of business quoted that was written, application processing time, premium volume handled by underwriters, skill level of underwriters, and benchmarking between different underwriting offices. The indicators of underwriting performance Insurance Company uses are called A. System indicators. B. Control indicators. C. Process indicators. D. Exposure indicators.

B

Insurance and risk management professionals use measures of dispersion of the distributions of potential outcomes to gain a better understanding of loss exposures being analyzed. Which one of the following is true regarding the standard deviation of a distribution? A. It is the average value of predicted losses estimated from an empirical distribution. B. It indicates how widely dispersed the values in a distribution are. C. It can only be calculated when the probability of each outcome in a sample of data is known. D. It is the probability of each possible outcome in a sample of data.

B

Jeremy purchased some long-term corporate bonds when he retired. He plans to use the periodic interest payments from the bonds to supplement his other sources of retirement income. However, some of the companies that issued the bonds that Jeremy purchased may become insolvent and unable to make periodic interest payments. This risk that Jeremy took when he invested in the corporate bonds is called A. Interest rate risk. B. Credit risk. C. Exchange-rate risk. D. Price risk.

B

Sebastian Snax is a manufacturer of organic snack foods. The products are distributed to grocery stores by a contract carrier. On March 31, Sebastian learns that the drivers for the contract carrier may go on strike at midnight. The contract carrier does not have a back-up plan, and Sebastian is now searching for an alternative way to deliver its products. How could management at Sebastian have better prepared for this potential disruption? A. Through use of just-in-time deliveries and work processes B. Through an improved relationship and communication with the contract carrier C. Through a business continuity plan

B

Kendall Incorporated is considering purchasing a facility in Wilmington, N.C. Top management believes that it is the perfect location for a facility to help with their goal to expand into the south eastern U.S. The risk manager, Mia, raised her concern about the risk of hurricanes and windstorms. She made the point that consequences could go well beyond physical damage to the facility. In order to take a holistic approach, Mia suggested that they assemble a cross-functional team to obtain a multidimensional view of the potential consequences of hurricane and windstorm risk. Which one of the following risk identification techniques is Mia suggesting? A. HAZOP B. Scenario analysis C. SWOT D. Process flow analysis

B: Mia is suggesting scenario analysis. Scenario analysis uses a cross-functional team to identify a range of potential consequences and prioritize risks

After meeting with an external expert on climate change, an organization's risk professional will need to do all of the following, EXCEPT: A. Assess the potential severity of the risks to the organization B. Recommend a treatment technique for risks with severe potential C. Communicate all of the potential risks cited by the external expert to the board of directors D. Identify those risks that are most likely to affect the organization

C

An analysis that identifies mathematical patterns in past losses and then projects these patterns into the future is A. Empirical probability analysis. B. Theoretical probability analysis. C. Trend analysis. D. Distribution analysis.

C

An employer who fires a worker because he or she exposed unethical or illegal practices leaves itself vulnerable to which one of the following types of employment practice claims? A. Discrimination B. Harassment C. Retaliation D. Fiduciary

C

An online retailer relies heavily on its website for sales. Which one of the following types of cyber risk exposures would a denial-of-service attack present? A. Contingent business income B. Tangible property C. Business income D. Intellectual property

C

An organization may use several forms of analysis to prioritize risks and maximize risk control resources. Under one type of analysis, the direction of reasoning in fault tree analysis is reversed by starting with causes and branching out to consequences. This type of analysis is called A. Root cause analysis. B. Sensitivity analysis. C. Failure mode and effects analysis. D. "5 Whys" analysis.

C

North American Furnishings was almost forced into bankruptcy when wildfires in California significantly affected its wood suppliers. The manufacturer was able to obtain the wood from other suppliers, but at a much higher cost. North American Furnishings was able to deliver its products, but they were delivered late and the company profits suffered. As part of its supply chain resiliency plan, the company has established contracts with several back-up supplies located in different geographic regions. It is hopeful that this will enable the company to outperform its competitors through adverse conditions. This plan will help North American Furnishings mitigate all of the following external supply chain exposures, EXCEPT: A. Financial risks B. Natural or man-made disasters C. Changes in demand D. Loss of supply due to external events

C

Northern Consolidated is evaluating the financial risk associated with its investment portfolio. The risk manager knows that as interest rates increase, bond values decrease. This relationship is known as A. A positive correlation. B. Optimization. C. A negative covariance. D. Uncertainty.

C

One financial risk for an insurer is that the insured will not pay all of the premiums when the premiums are due. This type of risk is called A. Underwriting risk. B. Interest rate risk. C. Credit risk. D. Price risk.

C

The occupancy class characterized by a large number of people who gather in a space that is relatively unfamiliar to them is A. Daycare. B. Healthcare. C. Mercantile. D. Business.

C

Which one of the following is a major responsibility of corporate directors? A. To establish the procedures and operational goals for each department B. To create the proper annual and interim reports for shareholders C. To perpetuate a competent board through regular elections D. To manage investments and disbursements of the corporation's assets

C

Which one of the following is a performance attribute used by the Supply Chain Operations Reference (SCOR) model to analyze the stages of a supply chain process? A. Capacity B. Diversity C. Agility D. Efficiency

C

Which one of the following statements about blockchain is true? A. Blockchain centralizes control of transaction data on a single computer server. B. While blockchain can reduce operational risks, it is easy to manipulate and hack. C. Blockchain stores a record of transactions across a network of servers. D. Although blockchain can increase efficiency of operating systems, the tradeoff is data inaccuracy.

C

Which one of the following statements is true about an organization's balance sheet? A. Total assets must equal total liabilities on the balance sheet. B. The balance sheet summarizes revenues and expenses for an accounting period. C. The balance sheet shows the financial position of a business on a specific date. D. Total liabilities minus owners' equity equals total assets on the balance sheet.

C

InterMountain Railroad carries logs, lumber, plywood, and other forest products in a six-state region in the Western part of the United States. InterMountain self-insures its derailment cargo losses. The risk manager at InterMountain ran a regression using ton-miles (one ton of cargo carried one mile) as the independent variable and dollar losses as the dependent variable. The independent variable is in units per 10,000 and the dependent variable is per 1,000. The resulting regression equation is: y = 2.65 x + (−13.8) Next year, InterMountain estimates that it will record 5,000,000 ton-miles of shipments. Given a building materials shortage, projected for next year, the cargo will be more valuable, so a 12% increase in value factor should be applied to the dollar loss estimate. Based on this information, what are InterMountain's final expected derailment cargo losses for next year, rounded to the nearest $10? A. $1,470 B. $146,850 C. $1,468,540 D. $14,839,990

C: y-intercept = −13.8; slope = 2.65; y = (2.65 × 500) + (−13.8) = 1,311.2; 1,311.2 X 1.12 = 1,468.54; 1,468.54 X 1,000 = 1,468,540. InterMountain's final expected derailment cargo losses for next year are $1,468,540.

Carla Meyers is an independent insurance agent. She specializes in personal lines coverages and coverage for small businesses. One of her clients is Metro Candy Company. The retailer is a candy store that makes all its products at the store. Metro Candy Company developed a devoted group of customers, and the store decided to begin to offer its candy to on-line customers through a web site. The owner asked Carla if the businessowners policy covering Metro Candy Company covered the store's new venture into on-line sales. Carla assured the owner that any cyber liability was covered. A month after initiating on-line sales, Metro Candy Company's web site was hacked. The hacker obtained credit card data from 213 customers. Unfortunately, the store's businessowners policy did not cover cyber liability. The candy store owner sued Carla. What type of insurance will protect Carla from this type of claim? A. Cyber liability insurance B. General liability insurance C. Directors and officers liability insurance D. Errors and omissions insurance

D

Corporate directors are considered to have met their duty of care if they A. Make informed decisions based upon their special business skills. B. Discharge their responsibilities according to the same standards that an employee of the organization would use. C. Conduct themselves in a manner that guarantees the enterprise's profitability. D. Act in good faith and in a manner they reasonably believe to be in the best interests of the corporation.

D

Motley Manufacturing is considering locating one of its facilities in northern California, but is concerned about the possibility of loss due to which one of the following natural hazards, which has one of the highest loss exposures for this phenomenon in this part of the country? A. Construction defects B. Flood C. Subsidence D. Earthquake

D

Three HillsLaw is a legal firm specializing in multiple-plaintiff cases. One current case involves alleged birth defects caused by exposure to polluted groundwater. There are currently 78 plaintiffs represented in the pending legal action. Up-to-date records on the condition of each child is a critical operational concern. Three HillsLaw turned to a secured digital ledger system in which independent third parties (nurses, physicians, and parents) can update the status of individual children, and the record for the entire group is automatically updated. The latest update showed seven children have died, 14 have a terminal diagnosis, 27 have permanent disabilities, and 30 cases are listed as "developing" (awaiting definitive diagnosis). The secured distributed ledger system used by Three HillsLaw is called A. Cryptocurrency. B. Robotic process automation. C. Telematics. D. Blockchain.

D

Global Reinsurance Company (GRC) is a European reinsurer that accepts risks from insurers around the world. Financial managers at GRC would like to estimate profitability for next year for their five primary risk areas: flood risk in Europe, earthquake risk in Japan, hurricane risk for the Gulf Coast of the United States, California earthquake risk, and typhoon risk in Indian Ocean nations. The financial managers entered event probabilities, loss payment estimates, retained loss levels, premiums to be received, and other data into a computer. Then the computer was programmed to select values for each variable and based on the data, to calculate net income. The computer was programmed to repeat the calculation 500,000 times. The output from the analysis was a distribution showing the probability of obtaining various profit levels. The procedure GRC used is called A. Computer simulation. B. Sensitivity analysis. C. Scenario analysis. D. Data analytics.

A

Hank has determined the expected number of workers compensations claims in a given year. Hank next calculates the standard deviation of potential outcomes. Calculating the standard deviation A. Provides a measure of how sure Hank can be in his estimate of claims. B. Enables the organization to make better use of its resources. C. Allows Hank to estimate accurate claim reserves for future workers compensation claims. D. Allows Hank to accurately predict the mean of the distribution.

A

Which one of the following is a managerial control measure to protect against the frequency of fraud losses? A. Stay informed of new varieties of fraud B. Install surveillance cameras C. Place marked cash in vaults D. Screen potential applicants

A

Which one of the following statements is true regarding social media and an organization's reputational risk? A. A single negative item of information on social media can reverse an organization's positive image and severely damage its reputation almost immediately. B. Social media sites provide little valuable insight into popular opinions that may affect an organization's reputational risk. C. Social media can protect an organization from reputational risk by blocking text that is patently false or can be taken out of content. D. Text mining can prevent negative text by customers, competitors, and reviewers from reaching social media.

A

Which one of the following supply chain exposures can a business mitigate by carefully wording contracts and diversifying suppliers? A. Loss of supply due to external events B. Changes in demand C. Production bottlenecks D. Strikes or other employment issues

A

Which one of the following supply chain risks is considered an external exposure? A. Financial risks B. Infrastructure risks C. Information technology D. Production bottlenecks

A

ABC Insurance Company is considering the purchase of Comp-Rite Insurance Company, an insurer that writes workers compensation insurance only. According to GAAP accounting statements, Comp-Rite has total assets of $100 million and total liabilities of $80 million of which loss reserves are $65 million. Which one of the following statements is true based on this information? A. The market value of Comp-Rite's loss reserves is less than $65 million. B. The market value of Comp-Rite is $20 million. C. The book value of Comp-Rite is $35 million. D. ABC Insurance should be willing to pay $100 million for Comp-Rite.

A: GAAP accounting does not permit loss reserves, a liability, to be discounted. Since workers compensation is a long-tail line, the market value of the loss reserves is less than $65 million. A loss reserve is an estimate of an insurer's liability from future claims it will have to pay out on. Typically composed of liquid assets, loss reserves allow an insurer to cover claims made against insurance policies that it underwrites.

Martha Hier, the Human Resource manager for Quick E foods is struggling with the loss of employees at its chain of restaurants. Of particular concern is the recent rash of discrimination cases brought against the company with former employees claiming mistreatment based on gender, age, or race. Hier went to the company's risk manager concerned not only with the immediate and short-term loss of productivity but the longer term potential human resource loss exposure resulting from A. Poor employee morale. B. Employment liability. C. Adverse publicity. D. Loss of brand equity.

B

One aspect of the failure mode and effects analysis (FMEA) is an examination that identifies the most important components of a system and ranks the severity of losing each component. This examination is called which one of the following? A. Root cause analysis B. Criticality analysis C. Sensitivity analysis D. Maximum possible loss analysis

B

After a metal pressing machine crushed an employee's arm, the risk manager of Metal Fab Company called a meeting. Those present at the meeting included the company's safety manager, the plant foreman, the part-time mechanic in charge of maintenance of the machine, the co-worker who taught the injured worker to use the machine, and the plant manager who purchased the machine two years ago. After completely describing the injury, the risk manager led a discussion on what caused the injury. Each time the group agreed on a cause, the risk manager asked what the reason for the cause was. After several rounds of this process, it was determined that the machine crushed the employee's arm because of failure to perform regular maintenance on the machine due to under-staffing. The type of root cause analysis conducted by the risk manager is called A. Fault tree analysis. B. Reunderwriting analysis. C. "5 Whys" analysis. D. Failure mode and effects analysis.

C

Harris Company is analyzing its workers compensation loss exposure. Harris Company retains most of the exposure and purchases excess insurance to cap its liability on any individual claim. Because Harris Company has a large work force, it can predict its workers compensation cost with some level of accuracy. For next year, the risk manager estimates that there is a 70% chance that workers compensation costs will be $6 million or less, a 25% chance workers compensation costs will be between $6 million and $8 million, and a 5% chance workers compensation costs will exceed $8 million. The type of analysis the risk manager performed is called A. SWOT analysis. B. HAZOP analysis. C. Quantitative analysis. D. Qualitative analysis

C

Local Petroleum Distributors (LPD) sells gas and diesel fuel to 72 independent gas stations and convenience stores. Receiving accurate data on the fuel needs of its customers is a critical operational concern. LPD installed sensors in the fuel storage tanks owned by each customer. At 11 PM each evening, the sensors send fuel data electronically to LPD. LPD receives the data, and a computer enters each record. The data are analyzed, and the analysis determines which retailers require a fuel shipment in the next three days. The electronic system has increased operational efficiency as shipments can be better coordinated, and retailers are no longer required to measure the fuel level and report manually. LPD's use of a computer to enter the data reported by the sensors is an example of A. Monte Carlo simulation. B. Data analytics. C. Robotic process automation. D. Blockchain.

C

MNO Tavern is a local sports bar which is popular with recent college graduates. Mark, the manager, notices a few social media postings complaining about the noise level in the bar. He is surprised to see this as an issue for his core customers, but decides to perform a social media analysis. Mark should concentrate his analysis on which one of the following? A. Low centrality measures B. Identifying the individual customers C. Local variables D. Internal stakeholders

C

When an employee retires or resigns, the most significant loss to the organization is typically the A. Past value that the individual added to the organization. B. Lost productivity associated with farewell or retirement social events for the departing employee. C. Future value that the individual would have provided to the organization. D. Severance package or retirement benefits provided to the employee.

C

Which one of the following commonly used categories of operational risk includes risks associated with technology and equipment? A. Process B. External events C. Systems D. People

C

Determining earnings-at-risk (EaR) entails modeling the influence of factors such as A. Differences in the prices of products from competitors' prices. B. The potential for both positive and negative credit risk for the organization. C. Employee satisfaction and other subjective variables that can be used for financial organizations but not nonfinancial organizations. D. Changes in the prices of products and production costs on an organization's earnings.

D

Every probability distribution includes the probability of A. 90% of the possible outcomes. B. Mutually exclusive but not collectively exhaustive outcomes. C. Collectively exhaustive but not mutually exclusive outcomes. D. Every possible outcome.

D

Harold insures his home which is on a one-acre site with many trees. The trees on Harold's property are A. Intangible property. B. Personal property. C. Uninsurable property. D. Real property.

D

Patrick works in the benefits department at a company whose responsibilities involve selecting investments that support the employee benefit plan. One of the investment options happens to be at a firm where Patrick's friend works. He knows the friend could use the money that would come from the substantial investment the benefit plan would create. Despite the fact there are more sound investments, Patrick decides to invest heavily in the friend's company. The investments perform adequately. Is this a violation of Patrick's fiduciary duties? A. Yes, the plan had the potential to perform better than it did. B. No, the investment provided adequate performance and no harm was done. C. No, his duties would have been violated, had the investment performed poorly. D. Yes, he has a duty to act solely in the interest of the plan and participants.

D

When using fault tree analysis (FTA), an "or" gate indicates which one of the following? A. That either event leading to the gate will prevent the next event from occurring. B. That all of the events leading to the gate must occur or the next event will not occur. C. That the event leading to the gate will cause one of the two events above the gate to occur. D. That any one of the events leading to the gate is sufficient to cause that event to occur.

D

Gaining a holistic perspective requires A. Developing a thorough understanding of each unit's role and how it supports or depends on other units and stakeholders. B. Becoming an expert on the work that every stakeholder performs. C. Designating one individual to be responsible for initiating meetings and dominating conversations. D. Encouraging individuals to resolve issues within their own work units.

A

Which one of the following is a technique used to provide a visual perspective of an organization's risks and to prioritize those risks? A. Risk mapping B. Risk quadrants C. Risk register D. SWOT analysis

A

Which one of the following is an example of exploratory data analysis? A. Correlation matrix B. Clustering C. Association rule learning D. Classification trees

A

A financial analyst wants to evaluate the effect that a predicted increase in the cost of steel will have on the net income of East Side Manufacturing. Which one of the following measurement techniques should the analyst use? A. Cost at risk B. Earnings at risk C. Conditional value at risk D. Value at risk

B

An approach to accident causation, which looks at an organization as a whole to identify potential sources of losses is A. Job safety analysis. B. System safety analysis. C. The energy transfer theory. D. The technique of operations review (TOR) approach.

B

Assuming a normal distribution, 34.13% of all outcomes are within one standard deviation above the mean. If the portion of the distribution between one and two standard deviations above the mean contains 13.59% of all outcomes, what percentage is contained in the area between the mean and two standard deviations below the mean? A. 20.54% B. 47.72% C. 52.28% D. 68.26%

B

Data analytics is especially useful for A. Structured data. B. Unstructured data. C. Internal data. D. Databases.

B

An organization may use several forms of analysis to prioritize risks and maximize risk control resources. Under one type of analysis, the direction of reasoning in fault tree analysis is reversed by starting with causes and branching out to consequences. This type of analysis is called A. "5 Whys" analysis. B. Root cause analysis. C. Failure mode and effects analysis. D. Sensitivity analysis.

C

In risk mapping, which one of the following represents the level of risk that is within an organization's risk appetite? A. Residual risk B. Inherent risk C. Optimum risk D. Current risk

C

Risk managers can have a hard time valuing which one of the following types of property due to the unique features of each tract? A. Real property B. Unimproved structures C. Unimproved land D. Intellectual property

C

Until a replacement for a key employee who has resigned or retired can be found and trained, the human resource potential of an organization is A. Unaffected; only the individual productive potential is affected. B. Improved, since a new hire often brings new skills and knowledge. C. Unknown and not important to an organization's success. D. Reduced due to a loss of that person's knowledge and future contributions.

D

When examining a model's results, insurance and risk management professionals should defer to A. The predictive model. B. The model's F-score. C. The model's performance on the training data. D. Their professional experience.

D

Which one of the following is the initiating event in an event tree analysis? A. Automatic sprinkler system is not activated B. Lightning strikes a warehouse building while it is closed for the weekend C. Warehouse building catches fire due to lightning D. Detection system notifies the fire department

B

The predictive approach to data-driven decision making would be most appropriate for which one of the following situations? A. A transportation company is looking for a way to optimize routes and improve fuel efficiency. B. A contractor is concerned about rising employee injuries at a jobsite. C. A restaurant is looking for a more reliable supplier of seafood. D. A marketing company is concerned about higher than average employee turnover at its Atlanta office.

A

Timber Company has sold lumber and wooden poles for many years. The company is considering expanding into plywood production by building a plywood manufacturing facility. As this is a major decision, the company gathered data on the following variables: labor costs, cost of raw materials (wood, glue, etc.), energy costs, sales price (dollars per square foot), and estimated sales volume. A probability distribution for each of these variables was created. Then a computer was programmed to select a value from each probability distribution and to calculate the net income before taxes. The computer was programmed to repeat the calculation 250,000 times, and to create a probability distribution of the outcomes. The results showed an expected value of $2.35 million in annual net income before taxes. Eighty-two percent of the outcomes were positive net income before taxes. The type of analysis that Timber Company performed is called A. Computer simulation. B. Decision tree analysis. C. Scenario analysis. D. Sensitivity analysis.

A

Tom works as a safety engineer at Cold Rolled Steep Corporation. During a system safety analysis, he identified the important components of the production process and has ranked the severity of losing each component into four failure categories. This is an attempt to establish priorities of the hazards and controls. Which one of the following analyses is Tom using? A. Criticality analysis B. Casual factor analysis C. Failure mode and effects analysis D. Job safety analysis

A

Which one of the following is a characteristic that differentiates big data from traditional data? A. Velocity B. Fraud C. Structure D. Privacy

A

The risk management professional for a large multi-location super market chain in the New England area observed that all of the buildings have a flat roof. His concern is primarily due to the possible loss resulting from A. Flood. B. Earthquake. C. Weight of snow, sleet, and ice. D. Fire and lightening.

C

Murray Supply Company has a commercial property policy with a $500,000 building limit and a $50,000 deductible. A tornado passed through the area and damaged one of the company's warehouses. The claims adjuster advised the risk manager that the amount of damage to the warehouse was $20,000. Which one of the following represents Murray Supply Company's risk threshold for a property loss? A. The $20,000 property loss B. The $50,000 property policy deductible C. The $500,000 building limit D. The $500,000 building limit less the $20,000 loss

B

Regression analysis assumes that the variable being forecast A. Can only be used when production is a variable. B. Varies predictably with another variable. C. Stays constant and does not change over time. D. Can only be used when time is a variable.

B

The important first step in a decision-making model is to A. Assign a data scientist. B. Define the problem. C. Purchase the technology. D. Prepare the data.

B

Which one of the following is a data analysis technique that operates in a way similar to the human brain? A. Social network analysis B. Regression C. Neural networks D. Clustering

C

Which one of the following statements is true regarding the use of risk registers with scenario models? A. The risk manager should complete a risk register for each location of the organization. B. An interactive computer system should be used for risk registers so they can be updated once a year. C. A risk register should record the likelihood of a scenario along with the consequences of associated risks. D. The likelihood of a risk register's scenario should not vary significantly among locations of the organization.

C

A main difference between decision trees and event trees is A. That decision trees have one possible outcome; event trees have several possible outcomes. B. The portrayal and analysis of various pathways. C. The process that is used to prepare the diagrams. D. That event trees analyze the consequences of accidental events rather than decisions.

D

In the context of a predictive model, a true positive results when the model A. Incorrectly predicts a positive. B. Incorrectly predicts a negative. C. Correctly predicts a negative. D. Correctly predicts a positive.

D

Technological advancements have led to access to unprecedented volumes and types of data. Social media posts are an example of which one of the following types of data? A. Internal structured data B. Internal unstructured data C. External structured data D. External unstructured data

D

If an insurer wants to determine the numerical value for a known target variable, it is most likely to use A. Association rule learning. B. Regression. C. A classification tree. D. Cluster analysis.

B

As a best practice, a risk register should be an interactive computer system. Which one of the following individuals should be responsible for continually updating risk information? A. Customer B. Risk management professional C. Risk owner D. Chief executive officer

C

Air-Freight Company wants to use failure mode and effects analysis (FMEA) to analyze its systems, subsystems, components, sub-assemblies, and parts. Level 1 is the overall system for shipping freight. Level 2 is the system segments, with the prime items (air freight hubs, schedulers, and logistics) designated as Level 3. Level 4 is the subsystems (local freight handlers, package sorters, etc.). Level 5 is the hardware and parts (forklifts, conveyor belts, planes, and delivery vans, etc.). In FMEA, these various systems and subsystems are called A. Indenture levels. B. Risk priority levels. C. Critical levels. D. Complexity levels.

A

Probability analysis is particularly effective for projecting losses in organizations that have A. A substantial volume of data on past losses and fairly stable operations. B. Identified a relatively limited number of potential loss exposures. C. A limited amount of historical loss data from which to project changes in loss costs. D. Elected to estimate probabilities based on external data rather than their own.

A

Risk management professionals can use risk mapping to identify inherent risk and residual (current) level of risk. Inherent risk is important because the difference between inherent and residual risk provides a measure of: A. The effectiveness of the current risk treatment. B. The necessity of risk financing. C. Speculative risk. D. Volatility.

A

Root cause analysis (RCA) encompasses a variety of tools, philosophies, and processes. There are several broadly defined RCA approaches, according to their basic approach or field of origin. Which one of the following approaches to RCA evolved from quality control procedures for industrial manufacturing? A. Production-based RCA B. Systems-based RCA C. Failure-based RCA D. Safety-based RCA

A

Tom, the regional manager at Westfork Mutual, has planned a community service day for all employees. He has asked his two assistant managers, Julian and Leah, to spread the word to other employees and encourage them to attend. Based on centrality measures of the company's email traffic, Tom is confident that Julian will spread the word to more employees more quickly through email than will Leah. Tom's confidence is based on Julian's high score in which one of the following centrality measures? A. Closeness B. Betweenness C. Association D. Degree

A

Using fault tree analysis, an "and" gate is connecting the events in rectangles C, D, and E to the event in rectangle A. If the probabilities of events in rectangles C, D, and E of the fault tree are .10, .20, and .30, respectively, what is the probability that the event in rectangle A will occur? A. .006 B. .100 C. .300 D. .600

A

Which one of the following best describes the purpose of applying a predictive model to holdout data during the training process? A. Applying a predictive model to the holdout data helps ensure that the model is not overfitted to the training data. B. Applying a predictive model to the holdout data helps ensure that the model will not apply generalization, which is the ability of a model to apply itself to data outside the training data. C. Applying a predictive model to the holdout data helps ensure that the model will not become a confusion matrix. D. Applying a predictive model to the holdout data helps ensure that the model will be cross-validated.

A

Which one of the following is a major benefit that blockchain technology provides to holistic risk management? A. Because of their security, blockchains can eliminate the need to verify the accuracy of risk management data. B. Blockchain technology allows organizations to share data through wireless internet and networking services. C. Blockchains can monitor things such as heat, moisture, noise, and air quality. D. Blockchain technology can monitor driving habits by measuring acceleration, speed, braking, and distance traveled.

A

Which one of the following is the first step in the text mining process? A. Retrieve and prepare text with preprocessing techniques B. Create structured data from unstructured data (words) C. Create a model using data mining techniques D. Evaluate the model

A

Which one of the following measures only the positive results of a model? A. Precision B. Accuracy C. F-score D. Recall

A

Which one of the following occurs when individuals, departments, or teams from different areas work together to accomplish a shared organizational goal? A. Collaboration B. Coordination C. Cooperation D. Communication

A

Which one of the following statements about event tree analysis is true? A. Event trees analyze the consequences of accidental events. B. Event trees show the results of a progression of decisions. C. Event trees assume no risk control measures have been deployed. D. Event trees can be used for qualitative analysis, but not for quantitative analysis.

A

Widget Manufacturing Company has noticed that its loss frequency and severity has increased in the past two years as its production has increased. In order to better forecast loss frequency and severity, Widget Manufacturing Company should consider using A. Trend analysis. B. Empirical probability analysis. C. Distribution analysis. D. Theoretical probability analysis.

A

Which one of the following statements about root cause analysis (RCA) is true? A. Root cause analysis is aimed at reducing the harmful effects of a loss once the loss has occurred. B. A root cause must produce effective recommendations for prevention of future accidents. C. The first step in root cause analysis is analyzing causal factors. D. Weather conditions and earthquakes can be considered root causes for some losses.

B

Which one of the following risk assessment tools has the potential to identify both negative risks and opportunity risks? A. Risk maps B. Audits C. Cause and effect analysis D. Failure mode and effects analysis

B

An organization practicing holistic risk management would assess the cost of raw materials and foreign exchange risk under which one of the following quadrants of risk? A. Strategic risk B. Financial risk C. Operational risk D. Hazard risk

B

Brenda is the new risk manager at Telecom Company. She did a preliminary analysis to identify organizational risks. Brenda then scheduled a meeting of the organization's leaders, key employees, and other stakeholders. Brenda asked her assistant, Brian, to moderate the session since he is skilled in risk identification, and he is a skilled communicator as well. Brian encouraged brainstorming, and asked follow-up questions. After the session, Brenda and her risk management colleagues had a much deeper understanding of Telecom's risks. The technique that Brenda applied is called a A. Delphi technique session. B. Facilitated workshop. C. SWOT analysis. D. Group-think.

B

Erin is a project manager at Shelton Manufacturing. She is responsible for a major project that will require the collaboration of many different groups. Erin needs to motivate everyone from the sales force and support team, to the suppliers, production lines, and logistics teams to achieve the goal by July 1st. Which one of the following is key in order for Erin to achieve this collaboration? A. Advising each group of the method that she wants them to use to complete their task. B. Putting the desired result at the forefront and making sure that everyone knows what group success looks like. C. Encouraging group members to ignore obstacles and keep moving forward. D. Setting individuals goals for each stakeholder involved in the project.

B

In a normal distribution, fewer than 5% of outcomes are A. Between one and two standard deviations above or below the mean. B. Outside two standard deviations above or below the mean. C. Within one standard deviation above or below the mean. D. Between the mean and two standard deviations above or below the mean.

B

Lucas, a risk professional for Jones Incorporated, recently met with experts from the utility industry to discuss the potential loss of supply and risks to the infrastructure. Lucas must now decide which risks, and proposed treatments, need to be communicated to the board of Jones Incorporated. Lucas should make this decision based on A. The supply source involved. B. The organization's risk appetite and tolerance levels. C. Whether the risk in natural or man-made. D. Whether any government regulations are involved or not.

B

Magruder Company would like to estimate the number of workers compensation claims to expect next year. Magruder's risk manager ran a regression analysis in which the number of workers compensation claims was the dependent variable and the number of payroll hours worked (in thousands) was the independent variable. The y-intercept from the regression was 3.8. The slope coefficient was 1.4. The risk manager believes that next year Magruder workers will work 80,000 payroll hours. Based on this information, approximately how many workers compensation claims should the risk manager expect next year? A. 15 B. 116 C. 305 D. 1,124

B

Risk maps differ from other risk assessment tools and techniques in which one of the following ways? A. Risk maps dissect processes within the organization from input to output for the purpose of improving them. B. Risk maps identify, prioritize, and quantify risks in a two-dimensional pictorial that illustrates frequency and severity on vertical and horizontal axes. C. Risk maps have the potential to identify both negative risks and opportunity risks. D. Risk maps are able to quickly explore a vast number of possible outcomes based on large datasets.

B

Shelton Manufacturing executives are growing increasingly concerned about wildfires and the potential effects on supply chain management. As the risk professional, Carla has been asked to meet with experts on the subject and report back to the executive team. Which one of the following should Carla do before meeting with external wildfire experts? A. Carla should speak with internal subject-matter experts in hopes that she can avoid needing the external wildfire experts. B. Carla should research the field and get a working understanding of wildfires. C. Carla should solicit questions from internal experts and submit them to the external wildfire experts. D. Carla should try to learn as much as possible about wildfires, so she can impress the wildfire experts.

B

The descriptive approach is applied A. When an insurer or risk manager is deciding what type of computer technology to purchase. B. When an insurer or risk manager has a specific problem. C. Repeatedly to provide information for data-driven decision making. D. To process information received from the Internet of Things.

B

The use of risk quadrants to identify and categorize risk provides a framework for A. Positive risk identification. B. Holistic risk identification. C. Emerging risk identification. D. Environmental risk identification.

B

Which one of the following is a benefit of the conditional value at risk (CVaR) method? A. It allows for changes in the portfolio. B. It takes into account the extremely large losses that may occur. C. It evaluates different market conditions. D. It is designed for nonfinancial organizations.

B

Which one of the following statements concerning Monte Carlo Simulation is true? A. Monte Carlo Simulation provides a single, certain, answer; rather than a range of possible outcomes. B. Monte Carlo Simulation can consider multiple variables and provides a range of possible outcomes. C. Once the data are assembled, a single calculation is performed based on the highest likelihood of each outcome, and inference is based on this single calculation. D. Monte Carlo Simulation is popular as it can be easily performed using a simple calculator.

B

Which one of the following statements is most accurate? A. Most text is automatically meaningful to an algorithm. B. The text in organizational files, social media posts, news stories, consumer reviews, and so forth is not automatically meaningful to a machine or an algorithm. C. Text in organizational files, social media posts, news stories, consumer reviews, and so forth is an example of structured data. D. Text mining is only effective for structured data.

B

Which one of the following valuation standards is most appropriate for valuing products that are relatively indistinguishable from one another, such as agricultural products, oil, or precious metals? A. Functional replacement cost B. Market value C. Economic value D. Book value

B

William is a project manager for Parker International. He has been assigned a key project with a short deadline. William realizes that this project is going to require revising the job duties of some individuals and a collaborative effort from of all team members. When revising job duties, William should do which one of the following? A. Overload some individuals with more work than others B. Try to enrich individuals' work rather than merely expand it C. Rely on the most senior individuals to take on additional duties D. Focus on the individuals' personality rather than results

B

Vicki has been hired to investigate industrial accidents for a biotech company that produces a number of drugs. In most cases, she will be asked to look at a particular system failure and trace the events leading to the failure backwards. Which system safety analysis technique would be most appropriate for this application? A. Failure mode and effects analysis B. "5 Whys" analysis C. Fault tree analysis D. Criticality analysis

C

A chart showing the probability of obtaining the numbers one through six on one roll of one die represents a A. Trend analysis distribution. B. Empirical probability distribution. C. Theoretical probability distribution. D. Continuous probability distribution.

C

Assume that the expected safe life of a heating element for a particular type of furnace is 4,000 hours with a standard deviation of 200 hours, and that the expected safe life conforms to a normal distribution. If the maintenance schedule requires that the element be replaced after 4,000 hours, which one of the following represents the chance that the heating element will become unsafe before being replaced? A. 30% because of the effect of the standard deviation applied to the 4,000 hour mean B. 40% because there is a 10% tolerance allowance C. 50% because 50% of the normal distribution is below the 4,000 hour mean D. 60% because there is a 10% tolerance allowance

C

Blithe Manufacturing has experienced a drop in market share. The marketing department has come up with a way to differentiate their product in order to regain market share. Blithe has assembled a team of individuals representing different organizational functions to analyze both internal and external factors of the new product and decide whether or not it is feasible. Which one of the following team approaches to risk identification is Blithe using? A. Delphi technique B. HAZOP workshop C. SWOT analysis D. Scenario analysis

C

James is the risk manager for a large manufacturing organization with six locations. Each location has a plant manager who is responsible for the operation of that location. James feels that the plant managers are in the best position to identify and measure risk at their locations. He wants them to own the risk. However, he is looking for a tool that will allow him to prioritize risk according to the potential effect on the organization. James wants an interactive tool that will adequately identify the organization's risks, and allow them to be measured based on likelihood and the level of risk to the organization. Which one of the following is the most appropriate tool for James? A. SWOT analysis B. Risk map C. Organizational risk register D. Facilitated workshop

C

Management of LMN Insurance Company is considering investing in the Stability-Growth Mutual Fund; however they are concerned about the volatility of the investment. The fund's manager said that on any given day, there is a 5% probability of losing more than 3% of the investment's worth. The statistic quoted by the fund manager is A. Coefficient of variation. B. Earnings-at-risk C. Value-at-risk. D. Standard deviation.

C

Modifying the contact surface or basic structure that can be affected by installing breakaway highway light poles or requiring front and side airbags in automobiles to cushion occupants' impact is a basic strategy of the A. Techniques of operations review approach. B. Change analysis. C. Energy transfer theory. D. Sequence of events theory.

C

Murray Trucking is interested in evaluating which risk factors are most likely to lead to the most costly accidents. They are evaluating risk factors such as speed, weather conditions, driver experience, distance traveled, and gross vehicle weight. Which one of the following statistical measurements would be useful for the risk manager when calculating the probability of the different risk factors causing severe accidents? A. Telematics B. Inverse covariance C. Variance D. Monte Carlo simulation

C

New Houma Mortgage Company leases a fleet of automobiles for its real estate appraisers. During her review of recent vehicular accidents, their risk manager is trying to identify failures, human and/or mechanical, in order to target corrective actions and prevent future losses by looking at ways in which these accidents occurred and ways in which the frequency or severity can be reduced. This is an example of the A. Future states analysis. B. Technique of operations review approach. C. System safety technique. D. Sequence of events analysis.

C

Probability analysis would be most reliable for projecting losses in an organization A. Planning to restructure its operations. B. That has recently expanded its operations. C. With a substantial volume of data on past losses. D. With a low number of historical losses.

C

Alice is an assembly-line worker in an auto parts manufacturing plant. One day she notices some irregularities in the operation of the punch press. Concerned about meeting production goals, she continues to operate the punch press without reporting the malfunction. Later that day, the punch press shatters, injuring Alice and several of her co-workers. This example best illustrates the accident causation theory of the A. Technique of operations review approach. B. Change analysis. C. Energy transfer theory. D. Domino theory.

D

A land developer hired Build Rite Construction Company to build three sets of starter homes in a Metro City suburb. The construction is to be completed in phases, with completion of each phase (Phase 1, then Phase 2, and then Phase 3) required before the next construction phase can begin. As this is a large scale project, Build Rite's controller used computer simulation to analyze the time necessary for completion of each phase. The best case, most likely, and worst case results, respectively, are summarized below. Based on the simulation results, which one of the following statements is true? Phase 1: 15 months, 16 months, 18 months Phase 2: 10 months, 12 months, 24 months Phase 3: 17 months, 20 months, 36 months A. Under the best case scenario, construction of all three phases will be completed in three or few years. B. Construction will be completed in exactly four years. C. Under the worst case scenario, construction will be complete in five or fewer years. D. There is less uncertainty about the time needed to complete Phase 1 than there is about the completion time for Phase 2 and Phase 3.

D

A tool developed at the risk owner level that links specific activities, processes, projects, or plans to a list of identified risks and results of risk analysis and evaluation; and that is ultimately consolidated at the enterprise level is called a A. Risk report. B. Risk map. C. Risk matrix. D. Risk register.

D

After a month in which three employees were seriously injured at company paper mills, Ashley, the risk manager of Bright White Paper Company, wanted some answers about the causes of employee injuries. Ashley independently contacted the plant manager and foreman at each of the company's plants. She asked each person to complete a confidential questionnaire regarding safety procedures. After receiving the responses to the questionnaire, Ashley summarized the results and asked the same questions again instructing each person to consider revising their responses based on the initial questionnaire results. The analysis revealed that new workers were not being properly trained and that a lax attitude toward safety was present at the majority of the plants. The team approach to risk identification Ashley employed is called A. Scenario analysis. B. HAZOP analysis. C. SWOT analysis. D. The Delphi technique.

D

Brendan is a new risk manager at a Shelton Manufacturing in North Carolina. Because the company has never experienced any consequences from a hurricane, the previous risk manager never really analyzed the risks associated with such an event. Brendan feels that a hurricane could trigger multiple far-reaching consequences and that the risk requires a thorough analysis. Due to Shelton Manufacturing's lack of historical data Brendan has decided to use a structured process that incorporates expert opinions into the probability estimations. Which one of the following types of risk assessment is Brendan using? A. Risk management technique B. Qualitative analysis C. Risk control technique D. Predictive technique

D

Buildings constructed of reinforced concrete have been successful withstanding this disaster, but building all structures in this manner is neither practical nor economical. This statement pertains to which one of the following disasters? A. Hurricane B. Fire C. Explosion D. Tornado

D

Cotton Products Company manufactures cotton clothing, towels, sheets, and other cotton products. All production takes place at one large multi-acre production facility. The risk manager of Cotton Products Company called a meeting attended by her staff, the plant foreman, the plant safety engineer, and the head of operations. She told the group that she wanted to analyze one problem-the top event-a catastrophic fire at the production facility. The group discussed all the causes of failure and factors that could contribute to the top event. The causes of the -top event- were listed, and methods of reducing the likelihood and consequences of the event were examined. The technique the risk manager employed is called A. Failure mode and effects analysis (FMEA). B. SWOT analysis. C. Scenario analysis. D. Fault tree analysis (FTA).

D

Emma is a risk management professional at a chemical engineering organization. A new process is being designed and Emma has been told that all risks must be identified and eliminated during the design stage. Emma is a risk management professional, but not a chemical engineering expert. She has assembled a team of engineering experts and stakeholders to identify the risk associated with the process by subdividing the process into components and reviewing each component and then recommend solutions. Which one of the following team approaches to risk identification has Emma chosen? A. Delphi technique B. SWOT analysis C. Scenario analysis D. HAZOP approach

D

Home Appliance Company has decided to change its production method. Previously, small teams of workers assembled washers, dryers, and dishwashers. Under the new production method, an assembly-line will be used, with some functions performed by robotics. Before making the change, Home Appliance Company has created a team of experts from company personnel to identify all of the risks inherent in the new production method and to recommend measures to address these risks. The team will assemble in a facilitated workshop and follow these steps: Divide the production method into components Review each component to identify risk Identify causes and potential outcomes for each risk Develop a solution for each risk. This team approach is risk identification is called a A. SWOT (strengths, weaknesses, opportunities, threats) analysis. B. Delphi technique. C. Facilitated workshop. D. Hazard and operability (HAZOP) study.

D

Insurance Company (IC) sells its coverages through independent insurance agents. Independent agents represent several insurance companies. Tom, the president of IC, has learned that the independent agent who is the highest producer for IC is considering selling his agency. IC is considering acquiring the agency since Tom is concerned that if the agency is sold, IC may lose a substantial amount of business. Tom asked IC's risk manager to analyze the prospective purchase. The analysis revealed that the acquisition would likely secure most of IC's book of business with the agency but also revealed local competitors that would try to place the business as well. In addition, the analysis revealed the opportunity for IC to move some accounts currently placed with other insurers over to IC. Also, it was learned that a competitor expressed an interest in the agency acquisition. The analysis performed by the risk manager is a form of A. Decision tree analysis. B. HAZOP analysis. C. Risk map analysis. D. SWOT analysis.

D

Nancy, the general liability claims manager, is concerned about a significant rise in claim frequency in the state of New Jersey during the past 18 months. She cannot identify the cause of the increase and has asked James, a data analyst, to help. James decides to develop a model to analyze the dataset of New Jersey claims, and see if any previously unknown grouping can be identified for further analysis. Which one of the following data analysis techniques is James using? A. Linear regression analysis B. Classification tree C. Correlation matrix D. Cluster analysis

D

Northeast Urban Properties owns and operates office buildings in New York, Boston, and Philadelphia. The risk manager decided to examine the impact of potential terrorist attacks on each building. For example, for the Philadelphia building, the risk manager examined attacks at three levels: scare (e.g. suspicious package), minor explosion or gas attack, and large-scale attack. For each level, the risk manager listed the risk owners, the risk quadrants impacted, the likelihood of attack, the consequence, the risk level, and the risk control measures that needed to be implemented. This information was summarized in a one-page chart. The chart the risk manager prepared is a A. Risk report with warning color code. B. Risk matrix with value at risk. C. Risk map with simulation. D. Risk register with scenario model.

D

One form of root cause analysis utilizes a fishbone diagram. Under this technique, a team of investigators brainstorms the causes of a risk event, sorts them into categories, and traces them to their origin. This type of analysis relies heavily on a A. Failure mode and effects analysis (FMEA). B. Sensitivity analysis. C. Scenario analysis. D. "5 Whys" analysis.

D

Risk manager Christine is analyzing the risks faced by her company, Clear Sky Technology. She assigns a rating based on the significance of the consequences of the various risks. Her four ratings are: Low, Medium-Low, Medium-High, and High. The ratings that Christine assigns are a A. Quantitative assessment. B. Sensitivity analysis. C. Scenario analysis. D. Qualitative assessment.

D

Tania works in the fraud unit for Greatview Insurance. There is a claimant who appears to be involved in multiple cases of insurance fraud. Tania decides to use social media to obtain information that may be used to develop a profile of the claimant. Tania's use of social media is an example of which one of the following types of data? A. Structured external B. Unstructured internal C. Structured internal D. Unstructured external

D

The outcomes in a continuous probability distribution are called probability A. Data points. B. Severity distributions. C. Distribution values. D. Density functions.

D

The purpose of fault tree analysis is to A. Provide an opportunity to discover and correct any defects in a product or process while it is still in its early engineering phases. B. Project consequences of some failure of a system component. C. Quantify the probability of each possibility identified in the analysis. D. Identify the various ways of interrupting the sequence of events leading to system failure so that the failure itself can be prevented.

D

Which one of the following types of property has no physical form? A. Real property B. Tangible property C. Uninsurable property D. Intangible property

D

Within a system safety context, the immediate physical environment includes A. Social norms and conventions and safety-environmental-transportation laws and regulations. B. Definitions of authority and responsibility that exist within the organization. C. The policies and procedures that govern the interaction of the system's physical elements. D. Temperature, illumination, pressure, and working surfaces.

D