Risk Management Exam Study Guide

Negligence is a failure to exercise that degree of care, which a reasonably prudent person would exercise under the same circumstances. There are four elements that must be proven to establish negligence. List the elements required to establish a negligence claim.

1. a duty owned 2. breach of that duty 3. causation 4. damages resulting from the injury

The CFO has approached you, the new risk manager, regarding the credibility of the company's loss data. Identify four characteristics of credible loss data.

1. all events included 2. enough data available 3. adequate details about each report 4. paid and open reserve amount

Risk Managers need to understand the requirements for implementation of an ERM program, and be prepared to manage the obstacles to ERM implementation. One of the requirements for implementing an ERM program is the need to establish a framework. Identify three other requirements associated with implementing an ERM program.

1. common language regarding risk 2. an ERM assessment 3. support from senior management

The law of contracts governs the performance of a written promise between parties. One of the four requirements for an enforceable contract is the contract must have legal purpose. Identify two of the remaining requirements for an enforceable contract.

1. competent parties 2. legal consideration

One of the characteristics of an effective Organizational Risk Culture is Tone at the Top, as exhibited by leadership, with positive corporate attitude towards risk in the organization. Identify and briefly describe the characteristics of an effective organizational risk culture.

1. corporate governance--clear responsibility of risk management and timeliness of risk information 2. decision making--well informed risk decisions and encourage good decisions 3. authority and accountability--embedding risk management abilities and responsibilities with organizations

One of the remedies for breach of contract or failure to preform is performance, i.e., enforced compliance with contractual promises. Identify three other remedies for breach of contract or failure to preform.

1. damages 2. reformation 3. injunction

You are working with your insurance company about the type of data that should be collected in every loss. One of the types of data that should be collected at the time of is date and time of loss. List four other types of data that should be collected at the time of loss.

1. hazard 2. claimant 3. loss location 4. hazard

As a professional risk manager, you recognize that you cannot be a master of all fields. You have decided to enlist the services of an outside expert to assist you with a project. One of the issues associated with using an expert is that is saves time. List three other issues associated with the use of experts.

1. higher level of experience to focus on exposures 2. can be difficult 3. can be expensive

Review of non-insurance contract provisions is another important step in the risk identification process. Two examples of non-insurance contracts are leases and employment contracts. List four other types of non-insurance contracts that should be reviewed.

1. hold harmless and indemnification agreements 2. purchase orders and sales contacts 3. bills of landing 4. advertising materials and warranties 5. service contracts

One of the characteristics of a policies and procedures review is to identify areas within the organization which may not confirm with stated policies. List three other characteristics of a policies and procedures review in the risk identification process.

1. identifies areas not addressed in stated policies 2. varied exposures may be found by review 3. organization politics may prevent effective treatment

One of the benefits of implementing an enterprise risk management (ERM) program is that it allows organizations to capitalize on the opportunities to increase shareholder value. List three other benefits of implementing an effective program.

1. identifies threats and opportunities 2. uses performance metrics to drive information in decision making 3. provides a common language

One of the impacts of an effective risk management program on an organization is that it supports managerial objectives. Briefly identify two other impacts of an effective risk management program on an organization.

1. increases profitability 2. protects brand and reputation

There are various methods of collecting individual loss-specific data, one of which are News Reports. Identify two other methods for collecting loss data.

1. interviews 2. weather reports

Two of the common reasons to the implementation of ERM include ERM limitations and perception of risk versus reality. List three other common obstacles to the implementation of ERM program.

1. lack of support from senior management 2. difficult to invest capital in risk management programs 3. showing return on investments

Effective implementation of a Risk Management Program requires support and commitment from senior management. To be successful, the risk manager should frequently communicate about risk management throughout the organization and to relevant third-party service providers. Identify two other strategies that will contribute to successful implementation.

1. managers and supervisors provide necessary support 2. all other employees are involved

ISO 31000 is an international standard that provides a framework for establishing an enterprise risk management (ERM) program. The standard includes five components or clauses. The first clause is Scope, and the second is Terms and Definitions. Identify and briefly describe the remaining three clauses.

1. principles--designed to create value, monitor, and respond to environment 2. framework--components embedded within company's policies and practices 3. process--consistent and structured approach

Tim's Pizza is a new client of your consulting firm. Tim's Pizza's CEO is concerned about an increasing growth in the number of losses; she wishes to implement a risk management program. You believe that to do an effective job, you must first classify and define sources of risk faced by Tim's Pizza. List the four logical classifications of risk faced by Tim's Pizza and provide one example of an exposure to loss that might exist in each classification.

1. property--office building 2. liability--advertising 3. human resources--employees 4. net income--investment activities

The income statement provides summary of the organization's financial performance for a specific period of time. Identify the four components of an income statement.

1. revenues/sales 2. expenses 3. cost of goods sold 4. depreciation

Of the four broad categories of risk in an ERM program, hazard is considered a pure risk category, often covered by, or transferred with insurance. Identify two other broad categories of risk in enterprise risk management.

1. strategic 2. operational 3. financial

It is important for a Risk Manager to understand the source of capital for an organization. For each of the following, identify the type of capital being described. A. This type of stock does not have voting rights. B. This is the least expensive of all capital sources. C. Internal funds not distributed to common stockholders.

A. Preferred Stock B. Long-term Debt C. Retained Earnings

Humpherys Enterprise owns shopping centers throughout the area. Obviously, property assets are a substantial portion of their balance sheet. Identify the valuation method that best fits each of the following: the historical cost less accumulated depreciation replacement cost less an allowance for obsolescence. the stream of future income assigned to a property the amount a willing buyer will give to a willing seller the original purchase price of a property the amount to replace a damaged or destroyed property with new property with no deduction for depreciation

Book Value Actual Cash Value Economic Value Market Value Historical Value Replacement Cost

One of the characteristics of checklists and surveys is that they do not prioritize exposures. List three other characteristics for flowcharts and two for physical inspections.

Flowcharts: 1. pinpoints benefits 2. doesn't indicate frequency Physical Inspections: 1. may find unreported hazards 2. time consuming and expensive

One internal factor influencing risk appetite and risk ability is past experience with risk taking. One external factor to consider is public image. List two other internal and two external factors that influence risk appetite and risk ability.

Internal: 1. stage in organization's life cycle 2. predictability of losses External: 1. Market position 2. competition

You are the risk manager for CanabisIsGood. You are in a meeting with the senior executives of the company. At the meeting, you explain that risk can arise from different situations within a business and in the following scenarios. Only one answer per subpart will be allowed. US Immigration fines CannabisIsGood $50,000 for knowingly hiring unauthorized aliens. A local government in a foreign country decides to nationalize all cannabis growers, including a CannabisIsGood subsidiary. One of the spokespersons in a CannabisIsGood television commericial is arrested on animal cruelty charges. One of the CannbisIsGood operations is located in California in the middle of an earthquake zone. A product liability case involving a burned lips due to a malfunctioning bong. There is an award of $500,000 in punitive and exemplary damages. This type of risk arises from operations, financial marketplace or entrepreneurial activites.

Legal Risk Political Risk Social Risk Physical Risk Physical Risk? Economic Risk

The CFO of your organization has asked for a comparison of the differences between a traditional risk management (TRM) and an enterprise (ERM) approach. The CFO suggests that she understands that TRM places risk identification and ownership with the risk manager and ERM uses subject-matter experts and risk committees to identify organizational risk. Identify two other principle elements for each of the ERM and TRM approaches.

TRM: 1. manages downside of risk 2. oriented to cause-of-loss ERM: 1. risk has potential to affect upside and downside 2. tied to key business objectives

The risk manager for intergalactic Enterprises is considering the benefits of the use of checklists and surveys. Briefly describe the purpose of checklists and surveys.

To systematically identify as many perils, exposures, and hazards as possible.

Define the terms risk appetite and risk ability.

appetite: willingness to take on risk ability: financial capacity to take on risk