1 Risk Treatment Basics

अब Quizwiz के साथ अपने होमवर्क और परीक्षाओं को एस करें!

What do large datasets about past events using computers, IoT devices, sensors, wearables, and telematic devices allow orgs to accurately do?

Identify patterns of risk, model risk, and predict risk

When is duplication appropriate

If an entire asset or activity is so important that the consequences of its loss justify the expense and time required to maintain the duplicates

When would an org choose to retain more risk?

In order to exploit an opportunity

What might an org find when analyzing its risk financing holistically across the enterprise

Inconsistencies in its approach to treating risk

Modify the risk

Increasing or decreasing an event's likelihood and/or consequences that will result in a positive or negative outcomes

Siloing risks

Individual risks in isolation

What does effective communication from risk professionals entail?

Inform decision makers and stakeholders of not only the overall strategy but also the steps needed to implement it and how its success can be measured

Internet of Things (IoT) devices, sensors, wearables, and telematics devices have had the greatest impact on which one of the following risk treatment techniques?

Risk Modification

When does an org exercise risk avoidance?

Risk is deemed too high to take on in any form

What other techniques is risk retentions typically used with?

Risk modification and risk transfer

What risks typically call for modification?

Risks that fall in the middle of loss likelihood and loss impact

Ed is investment manager of the Nellor Foundation, a charitable trust. Recently, Ed met with the president of the Foundation. Up until now, assets have been invested in financial assets. Ed told the president that after performing a simulation, he would like to add a high-yielding, higher risk real estate investment to the portfolio. When the president asked if it would be too risky, Ed replied, "It will actually increase expected returns while reducing risk." The purported reduction in risk occurs because

The real estate investment returns are negatively correlated with the other assets. - Sources of risk that have a low positive correlation, no correlation, or a negative correlation with other risk sources in a portfolio are generally good risk sources to add to the portfolio and tend to improve the organization's risk-return position by increasing risk diversification. If the real estate investment returns are negatively correlated with the portfolio, risk is reduced.

Risk treatement

The selection and implementation of actions to help manage or mitigate a risk

But what do risk management professionals need to factor in in terms of financing?

There is a cost associated with forecasting technology

Each of the risk control techniques of duplication, separation, and diversification

These three risk control techniques all reduce the severity of loss associated with the organization's loss exposures even though they increase the number of loss exposures overall.

The more risk an org retains...

the more funds it must allocate to finance those risks

Elements to a successful holistic risk treatment process

- Involvement from the entire organization - An organizational and departmental structure that facilitates managing risks as a group - Risk treatment policies that cross departmental barriers - Measurements that consider the entire org - visible engagement from upper management - Risk treatment performance metrics

What has Machine learning and AI allowed?

- developing products that specifically address certain risks - helped insurers price insurance policies more precisely - facilitated insurers' abilities to create alternative produces

What type of process is risk treatment?

A continual process

Hedging

A financial transaction in which one asset is held to offset the risk associated with another asset

Correlation

A scaled version of covariance expressed from -1 to +1 which is the correlation coefficent

Retain the risk

Accepting and absorbing some or all of the consequences of the risk

What activities are retained and accounted for in the annual budget?

Activities with losses that have a slight chance of occurring and are of low impact

How has risk management become forward looking?

Advances in data capture, data storage, and data analytics

Dashboard reporting

Aims to share info as succinctly as possible Providing all the info internal stakeholders need about a particular subject within a very brief period of time

Four categories of loss likelihood

Almost nil Slight Moderate Definite

Prouty Approach

Analyzes a risk's loss likelihood and impact to determine a proper treatment Matrix to determine which treatment is best

What are those funds to finance those risks used for?

Apply the risk treatments of avoidance, modification, transfer, and retention

Holistic risk treatment

Approach to treating all of an organization's risks and opportunities in a way that uses available resources as efficiently as possible to maximize outcomes

How to avoid status difference

Ask for ideas from lower-level persons before turning to those of higher standing Ask higher up people to concentrate only on certain aspects of the topic

How to deal with hidden agenda

Attempt to bring hidden agendas into the open - Ask questions or state your observations and ask for the person's reaction - Consider starting the meeting by asking people to state their concerns

Risk Treatment Technique options

Avoid the risk Modify the risk Transfer the risk Retain the risk Exploit the risk

Why are risk committees important in terms of tech?

Because tech and its risk management ramifications evolves too fast for any single person to keep track of

What does holistic risk treatment require?

Big-picture thinking

What is the infrastructure upon what smart contracts and built and implemented?

Blockchain technologies

What should orgs do if they choose to retain their risk?

Carefully analyzed so that the org fully understands the extent of the risk

Ethos

Character -- need to establish credibility - Convince the audience you are worth listening to and why they should take you seriously - Use your past as a means of persasion

What else do risk professionals have to do in holistic risk managment?

Communicate the effectiveness to internal stakeholders

Conor needs to deliver an important message to his staff. He has scheduled a meeting in a conference room with his staff of 10 individuals. Which one of the following is the best way for Conor to use his body language to convey confidence in his message and interest in his staff?

Conor should sit up and lean slightly toward the audience

What should treatment selection include?

Cost-benefit analysis to ensure that the benefits of a treatment option outweigh the related costs

Risk treatment metrics

Covariance and correlation

What is the goal of holistic risk treatment?

Create an all encompassing view of the possible risks, treatments, and outcomes a company may face

Status difference

Differences in the informal status and formal rank of participants - People hesitate to contradict people w more power

What do both covariance and correlation assess

How one risk factor affects another and are useful for selecting risks or opportunities to offset other risks

Covariance

How two variables will change in relation to each other

How do you lead effective meetings

Define specific objectives Decide who to invite to the meeting A plan for meeting your objectives at the end of the meeting Double checking your knowledge / anticipated questions

Most effective dashboard

Designed with its audience in mind What the audience objectives are, what types of decisions they make, and what information is needed to inform those decisions

Maxwell Company has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. Maxwell arranged to lease identical equipment at another location so that it could use the equipment in the event of a disaster at its location. Maxwell's lease of identical equipment at another location is an example of

Duplication

What does successful risk management depend on?

Effective communication

Pathos

Emotion -- need to make an emotional appeal to your audience

Modes of persusasion

Ethos, Logos, Pathos

What does risk treatment entail?

Examining each risk treatment option in terms of whether it leads to a tolerable level of residual risk or helps the org maximize the potential benefits of an opportunity

What elements does a treatment plan must contain?

Explanation of treatment technique Proposed actions Resource requirements Roles and responsibilities Timeline Monitoring requirements

What type of risks do orgs that extend credit to customers face?

Financial risks related to those customers' failure to repay debts

What must every org do in order to achieve strategic objectives?

Find ways to pay for the corresponding risks and treatments

Risk financing

Form of risk treatment that is needed to pay for the cost of an org's risk

Why are gains in a holistic approach more substantial than siloed?

Gains in one area of an org can be used to offset losses from another - Eliminates the need to treat the risk resulting ina loss

What is one of the common ways financial risks can be transferred?

Hedging

What are the advantages of sioled aprroaches to risk treatment?

Help mitigate the effects of negative risks and optimize opportunities to achieve strategic goals

Two common communication problems

Hidden agendas and status differences

What orgs are in a better position to take full advantage of emerging technologies?

Orgs that use risk committees composed of cross-functional decision-makers and stakeholders and discuss emerging risks and potential technological treatments

Types of risk modification

Loss prevention Loss Reduction

What are good risk sources to add to a portfolio and why?

Low positive correlation, no correlation, or negative correlation - They tend to improve the org's risk-return position by increasing the portfolio's risk diversification

What does hedging normally involve?

Making an investment to reduct the risk of adverse price movements in an asset

What does risk treatment involve?

Making decisions based on the results of a risk assessment - Risk-response panning

Best communication skills

Mastering nonverbal messages Leading effective meetings Using modes of persuasion Overcoming common problems

What do the categories provide to risk management professionals

Means of communicating and justifying the priority they believe should be placed on a risk as well as a means of providing risk treatment suggestions

What could these advancements in forecasting result in?

Minimal financing being required to retain, transfer, or modify negative risks

What risk treatments have been affected the most by technology?

Modification and transfer

Are treatment techniques mutually exclusive?

No - Many risks call for a combo of techniques

Can strategic risks be transferred?

No Or the cost to transfer the risk exceeds the expected return

Meeting Killers

No stated purpose No agenda Wrong people attending Bad timing Lateness Wandering Lack of conclusion

Disadvantages of siloed approach?

Not as substantial as holistic approach - Might treat negative risk unnecessarily because the treatment of risk results in a loss without considering the possible gains in another area

When is risk retention used?

Often used only after other treatment techniques have been considered When the potential negative consequences associated with it are low

Why is Parametric insurance and microinsurance more prevalent due to tech?

Parametric insurance and microinsurance cover risks associated with small events or one-time events -tech advancements eased the admin burden and expense of these products by allowing apps, data, and premiums to be collected and processed electronically

Bow-Tie Diagram Method

Process of communication and collaboration that identifies a risk and then lists its possible causes and possible consequences on either side - Sees possible causes of risk that create specific consequences

Feedback loop

Process that allows constant, consistent monitoring of holistic risk management Find the risk objective, create a program for that risk, look at the results and either maintain that program or change it

What is a prime example of risk transfer?

Purchasing insurance

What does risk financing for risk transfer involve?

Purchasing insurance that shifts the risks associated with an org's product, process, or action to an insurer

Win/Loss Combination chart

Pure risk vs speculative Win,Win Win, Loss Loss,Win Loss,Loss

What can real-time data and AI do?

Push product offers to potential customers that are specifically tailored to the requirements of those individuals/orgs when needed - done via mobile devices

Logos

Reason -- support your message/claim with evidence

What is the goal of each risk identified as needing treatment?

Select one or multiple treatment options that best help the organization achieve its strategic objectives

What else does risk treatment involve?

Selecting, communicating, and implementing risk treatment options and measuring effectiveness

Smart insurance contracts

Self-executing contracts that will initiate a loss payment as soon as the parameters for the contract have been reached

Cold Coolers, Inc., has its main warehouse in St. Louis. It also stores inventory in two warehouses in other cities to reduce the distance between their warehouses and retail locations. Cold Coolers is using which one of the following risk management techniques?

Seperation

Transfer the risk

Sharing the risk with, or moving it entirely to, another party

Three categories of loss impact

Slight Significant Severe

Avoid the risk

Stop or canceling the activity that would cause the risk

Are these categories objective or subjective?

Subjective

Exploit the risk

Taking actions to maximize the expected gains of opportunities

What is dramatically changing the risk financing environment?

Technology

What does correlation measure?

The degree to which two variables are related -- the strength of the relationship

What can significantly affect an orgs outcomes?

The interconnectedness and interactions between risks and their treatments

Why should treatment include a cost-benefit analysis?

To ensure that the benefits of a treatment option outweigh the related costs

Because risks can be predicted so accurately, how far can it be modified?

To the point of being nearly preventable

What does risk financing typically entail?

Transfer or retention of risk

credit derivatives

Transfer the credit risk to a third party in exchange for a fee paid to that third party

Seperation

Type of modification and retention that disperses a particular asset or activity over several locations

Duplication

Type of modification and retention that duplicates exposure units

How do you get the best results when using nonverbal messaging

Watch how others react to you and adjust tone of voice to promote engagement and credibility - Sitting up and leaning slightly forward conveys confidence/interest

What can convince reluctant parties of the value of sharing info to inform and improve risk management strategies?

Well-practiced communication skills

When do risk professionals use correlation

When considering how a risk interacts with other risks - in the form of a matrix

How do you know if an org is effective at treating risks holisticially?

When the process is integrated into normal business operations as opposed to living in separate functions handked by those not involved in everyday

When is covariance used by a risk prfessional?

When there are two sets of data and he or she wants to see if they are connected to each other

What are typical questions a dashboard user strives to answer?

Whether any busienss objectives are at risk Whether all gov regulations are met Previous risk assessments that need to be revisted

Hidden agenda

a secret motivation that is unknown to the rest of the group, such as the desire to take control, undermine another person, or sabotage progress

When are holisitc risk treatments used?

it is broad in scope-- examines all risk treatments that could be applied to multiple risks faced by various departments Not siloing risks


संबंधित स्टडी सेट्स

PS2100 (Ch. 12), (Ch. 14) & (Ch. 17)

View Set

1D7XX - Cyber Defense Operations (UGT)

View Set

Section 7 - Sales Comparison, Cost and Income Approaches

View Set

Among the Hidden Chapter 6-10 Review

View Set

Accounting Chapter 11 Review Questions

View Set