CPCU 500

Infection, radiation poisoning, and asbestos exposure can cause

Illness

An organization can use securitization to exchange

Income-producing assets for cash.

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be

Independent and not catastrophic.

When assessing strategic risk, which one of the following represents the amount of risk an organization is willing to take on in order to achieve an anticipated result or return?

Risk appetite

The level of confidence an organization places in the organization's risk management culture, practices, and procedures is called

Risk assurance.

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

A major benefit of involving a special purpose vehicle (SPV) in a securitization transaction is that investors can decide whether to invest in the securities based on the

Risk presented by the income-producing assets held as collateral by the SPV

Risk treatment

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

Output price risk

The uncertainty regarding the price an organization can charge for its product

Insurtech

The use of emerging technologies in the insurance industry

Telematics

The use of technological devices in vehicles with wireless communication and GPS tracking that transmit data to businesses or government agencies; some return information for the driver.

Regression analysis assumes that

The variable being forecast varies predictably with another variable.

A chart showing the probability of obtaining the numbers one through six on one roll of one die represents a

Theoretical probability distribution

Risk managers today differ from traditional risk managers in which one of the following ways?

They attempt to minimize threats and optimize opportunities.

Depreciation

describes allocation of a noncurrent tangible asset's value over its useful life

Big data

sets of data that are too large to be gathered and analyzed by traditional methods.

Diversification is a risk control technique that

spreads loss exposures over numerous projects, products, markets, or regions

Failure-based RCA

stems from failure analysis and is used primarily in engineering and maintenance

A new computer chip that could position a company for explosive growth is an example of

strategic risk.

Linear Regression Line Equation

y = mx+b

Probability distribution

A presentation (table, chart, or graph) of probability estimates of a particular set of circumstances and of the probability of each possible outcome.

Robotic process automation (RPA)

A program that automates repetitive organizational processes. Most often used for administrative tasks, such as data entry.

Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk?

A pure risk is a chance of loss or no loss, but no chance of gain.

Correlation

A relationship between variables

Loss reduction

A risk control technique that reduces the severity of a particular loss.

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures?

A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period.

Blockchain

A distributed digital ledger that facilitates secure transactions without the need for a third party.

After an organization develops and implements its strategic plan, it needs to determine how risk taking will be controlled. Which one of the following statements is correct with respect to risk taking?

A factor in strategic decision making is whether an organization has an advantage in controlling risk with a given activity

What is the term given to the duty to act for someone else's benefit?

A fiduciary duty

Derivative

A financial instrument whose value is derived from the value of an underlying asset, which can be an index, an asset, yield on an asset, weather conditions, inflation, loans, bonds, an insurance risk, or other items.

Hedging

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

Shareholder value added

A measure of profitability after funding costs are considered; used to measure a corporation's worth to shareholders, and it can be an indicator of management effectiveness

Risk Adjusted Return on Capital (RAROC)

A measure of the return on investment after accounting for risk. Calculated by taking the total return on an asset or initiative, subtracting taxes, and dividing it by its economic capital

Key performance indicators (KPI's)

A measurement that defines how successfully an organization is progressing toward its long-term goals

Key performance indicator (KPI)

A measurement that defines how successfully an organization is progressing toward its long-term goals.

Actuator

A mechanical device that turns energy into motion or otherwise effectuates a change in position or rotation using a signal and an energy source.

Porter's Five Forces Analysis

A method of evaluating five forces that affect an organization's competitive environment, including the threat of new entrants to the market, the threat of substitute products or services, the bargaining power of customers, the bargaining power of suppliers, and competition among existing firms.

SWOT analysis

A method of evaluating the internal and external environments by assessing an organization's internal strengths and weaknesses and its external opportunities and threats.

Exposure indicator

A metric used to identify risk inherent to an organization's operations

Cluster analysis

A model that determines previously unknown groupings of data

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 negative covariance.

Internet of Things (IoT)

A network of objects that transmit data to and from each other without human interaction.

Normal distribution

A probability distribution that helps forecast volatility around a central, or an expected, value. When data is distributed evenly around a central data point and forms a bell curve

Party A and Party B have entered into a contract specifying that Party A will hold Party B harmless from claims arising from their joint fault. This is an example of which one of the following forms of a hold-harmless agreement?

Intermediate form

Which one of the following is an internal source that can often provide information regarding risks that aren't obvious?

Internal auditing

If an organization directly securitized its income-producing assets without using a special purpose vehicle (SPV) as an intermediary, investors

Must consider the overall credit risk of the organization

The traditional definition of risk management reflects the traditional concept of risk as

Negative

Which one of the following statements about the balance sheet is correct?

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

Which one of the following is a data analysis technique that operates in a way similar to the human brain?

Neural networks

Is there credit risk if a customer pays the loan every time?

No

Directors' and officers' fiduciary duties include the duty of

Obedience

The four SWOT headings are strengths, weaknesses, threats and

Opportunities

An example of a post-loss action for the windstorm cause of loss is

Patrolling premises to prevent looting or vandalism

Risk indicators such as experience and authority levels apply to which one of the following operational risk classes?

People

Operational Risk

People, processes, systems, or controls; pure risk

Which one of the following is a major benefit that smart insurance contracts can provide to insurance customers?

Smart contracts can dramatically increase the speed of loss payments.

Which one of the following risk management program goals enhances an organization's reputation

Social responsibility

Which one of the following risk management program goals enhances an organization's reputation?

Social responsibility

Preventive analytics

Statistical and analytical techniques used to influence or prevent future events or behaviors.

Which one of the following is a pre-loss action for the flood cause of loss?

Stock disaster supplies

The control technique that disperses a particular asset or activity over several locations and regularly relies on that asset or activity as a part of an organization's working resources is which one of the following?

Separation

Jane always drives to visit her children who live one thousand miles away. She enjoys driving and feels safer in a vehicle than on an airplane because she feels she has more control of her fate. This driving versus flying decision is an example of

Subjective risk

Risk can be classified as subjective or objective. Which one of the following statements is correct with respect to these risk classifications?

Subjective risk can exist even where objective risk does not.

Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is a

Subjective risk.

According to the law of large numbers, as the number of exposure units insured icnreases,

The relative accuracy of predictions about future losses increases.

According to the law of large numbers; as the number of exposure units insured increases,

The relative accuracy of predictions about future losses increases.

Which one of the following is true about the liability involved in contracting services?

The responsibility that certain duties be performed safely cannot be delegated to another party, such as the duty of common carriers to carry passengers safely.

Credit risk

The risk that customers or other creditors will fail to make promised payments as they come due.

Counterparty risk

The risk that the other party to an agreement will default

Ergonomics

The science of designing work space and equipment based on the needs of the people who use the work space and equipment.

Risk transfer

The shifting of risk from one individual or organization to another.

The focus of risk quadrants is different from the focus of risk classifications in general. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on

The source of risk and who has traditionally managed it.

Which one of the following statements is true regarding the strategic management process?

The strategic management process can be applied to any type of organization, including business, not-for-profit organizations, and government entities.

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis. One of the younger store employees suggested they create a website to expand sales to on-line purchases and target electronic advertisements to commercial accounts. Taylor believes the website is a good idea and will increase sales of lumber. To protect Paoli from increases in the cost of lumber, Taylor is considering a forward contract with the lumber yard. Which one of Porter's Five Forces is most greatly affected by Paoli's ability to negotiate a forward contract with a lumber supplier?

The suppliers bargaining power to drive prices up

Event trees

analyze the consequences of accidental events rather than decisions. Qualitatively: generate scenarios, progressions, and consequences that could potentially result from an accidental event. Quantitatively: estimate probabilities and frequencies of various scenarios and outcomes and help organizations determine the effectiveness of or need for controls and safeguards.

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

Weight of snow, sleet, and ice

Which one of the following statements is correct regarding the challenges of delivering messages to internal and external stakeholders?

When addressing individuals of different status levels, it is best to ask for ideas from lower-level persons before turning to those of higher standing.

The descriptive approach is applied

When an insurer or risk manager has a specific problem.

Which one of the following statements is true regarding characteristics of normal distributions?

When graphed, a normal distribution generates a bell-shaped curve.

A company's management team is preparing to conduct a SWOT analysis as part of its strategic management process. Which one of the following questions can the management team expect to answer as a result of the SWOT analysis?

Will this organization's current business strategies still allow it to achieve its goals, or is a change required?

Widget Manufacturing board of directors recently adopted a zero-risk tolerance for work place accidents. Initially the chief risk officer thought this was a great idea, however, he has found it very hard to implement. One reason that a zero-risk tolerance policy is hard to implement is because zero-risk tolerance

Will typically result in risk-based decisions that are too rigid and counter-productive

A storm with high winds or violent gusts of wind with little or no rain is which one of the following?

Windstorm

Probability analysis would be most reliable for projecting losses in an organization

With a substantial volume of data on past losses.

The relationship between which two basic measures is critical for risk management in assessing risk and deciding whether and how to manage it?

Likelihood and consequences

"The contractor agrees to indemnify and hold harmless the owner against claims, damages, bodily injury, or property damage arising out of the contractor's work and caused by any act of omission of the contractor, his agents, and his employees." This is an example of which one of the following forms of a hold-harmless agreement?

Limited form

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?

Liquidity risk

Hazard Risk

Property, liability, personnel, consequential losses; pure risk

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?

Variance

William is a risk manager for Green Mountain Trucking. He has always analyzed auto loss frequency and severity rates for the fleet. William would like to collect data on vehicle speeds, braking patterns, and distance traveled and compare that with the loss history. Which one of the following would help William capture and analyze this data?

Vehicle telematics

Which one of the following is a characteristic that differentiates big data from traditional data?

Velocity

The Life Safety Code requires that many buildings or structures should have

Fire alarms

Leverage ratios

measure the degree to which managers use debt or equity to finance ongoing operations

Balance sheet

listing of everything that the organization owns and everything that it owes at a particular moment in time; snapshot of the company's financial position as of that date

Transducer

A device that converts one form of energy into another.

Law of large numbers

A mathematical principle stating that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes (losses) also increases.

Empirical probability (a posteriori probability)

A probability measure that is based on actual experience through historical data or from the observation of facts. only estimates, samples must be large and representative

Likelihood

A qualitative estimate of the certainty with which the outcome of a specific event can be predicted.

Avoidance

A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated.

Loss prevention

A risk control technique that reduces the frequency of a particular loss.

Diversification

A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions.

Retention

A risk financing technique that involves assumption of risk in which gains and losses are retained within the organization.

Risk financing

A risk management technique that includes steps to pay for or transfer the cost of losses.

Insurance

A risk management technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer.

Hi-Tech Phones has been working on two new models of their flagship smart phone. The Research and Development department has been working on a touch-based phone and a voice-activated phone. Which one of the following is a tool that could be used to assess the risks of developing and marketing either or both of these phones?

A risk map

Probability analysis

A technique for forecasting events, such as accidental and business losses, on the assumption that they are governed by an unchanging probability distribution.

Earnings at risk (EaR)

A technique to assess earnings volatility by measuring the likelihood that earnings will be below a specific dollar amount over a specific period of time.

Value at risk (VaR)

A technique to quantify financial risk by measuring the likelihood of losing more than a specific dollar amount over a specific period of time.

Conditional value at risk (CVaR)

A technique to quantify the likelihood of losing a specific dollar amount that exceeds the VaR threshold

Key Risk Indicators (KRI's)

A tool used by an organization to measure the uncertainty of meeting a strategic business objective.

Key risk indicator (KRI)

A tool used by an organization to measure the uncertainty of meeting a strategic business objective.

The predictive approach to data-driven decision making would be most appropriate for which one of the following situations?

A transportation company is looking for a way to optimize routes and improve fuel efficiency

Subprime Borrowers

A type of borrower who has a low credit rating or a limited credit history

Tornado

A type of violent windstorm that consists of winds rotating at speeds of up to 300 miles per hour; a partial vacuum develops at the center of the storm (vortex)

Strategy map

A visual diagram showing the plans an organization develops to meet its strategic objectives.

Smart product

An innovative item that uses sensors; wireless sensor networks; and data collection, transmission, and analysis to further enable the item to be faster, more useful, or otherwise improved.

Data science

An interdisciplinary field involving the design and use of techniques to process very large amounts of data from a variety of sources and to provide knowledge based on the data.

Special purpose vehicle (SPV)

An intermediary that enables the bank to convert its mortgage receivables asset into a cash asset; established to purchase income-producing assets from an organization, holding title to them, and the using those assets to collateralize securities that will be sold to investors

Risk management professionals must collaborate with data analysts during which two steps of the risk management process?

Analyze risks and monitor risk treatments

Carla, the risk manager, was asked by senior management to deliver a presentation on cyber risk at an all employees meeting. Even though she was only allotted 30 minutes for her presentation, Carla felt that cyber risk was a very real risk for the corporation and she wanted employees to leave with some fear of it. She wanted to provide employees with as much technical information as possible, and familiarize them with all of the important jargon. Less than 20 minutes into her presentation, Carla could tell that many of the employees were not paying any attention to her presentation. Which one of the following steps in the communication process had Carla failed to consider?

Analyze your audience

During which one of the following stages of the strategic management process would an organization use methods such as Porter's Five Forces Analysis and PESTLE Analysis?

Analyzing Environments

Telematics devices allow organizations to accurately identify patterns of risk and predict risk for which one of the following types of loss exposures?

Automobile

Blithe Drug Manufacturing has developed a drug that cures obesity. However, the side effects are significant and potentially fatal. Blithe decides not to manufacture and sell the drug. This is an example of

Avoidance

Which one of the following statements about root cause analysis (RCA) is true?

A root cause must produce effective recommendations for prevention of future accidents.

A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them and then using those assets to collateralize securities that will be sold to investors is

A special purpose vehicle

Regression analysis

A statistical technique that is used to estimate relationships between variables.

Windstorm

A storm consisting of violent wind capable of causing damage.

Box action design

Earthquake-resistant construction, used in buildings under three stores tall, that integrates roof and floor diaphragms that can flex to transmit and distribute the forces an earthquake exerts on a structure.

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

Economic value

The amount that property is worth based on the ability of the property to produce income is known as its

Economic value

Hanna is preparing her presentation for a meeting. She has a very specific objective which has been shared with the audience. Hanna wants to include several slides in her presentation because she has read that people tend to learn more from presentations that are accompanied by visual aids. Hanna should use the slides to do which one of the following?

Emphasize key points

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

Energy transfer theory

When communicating a decision up the organization's chain of command, consulting with outside experts can help a risk management professional do which one of the following?

Enhance stakeholders' confidence in the process

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?

Financial risk

Discrete probability distributions

Finite number of possible outcomes Hurricane exhibit Typically displayed in a table that lists all possible outcomes and the probability

The risk control measures used to protect people and property from the adverse effects of hostile fires are collectively called

Fire safety

In remodeling the primary office location, Phil, who is a partner in his family's construction business, found asbestos in the attic of the building. He is concerned not only about the current tear-out exposure but is also aware that asbestos may have resulted in unidentified harm. In the "quadrants of risk," Phil's concern about the asbestos most likely falls into which one of the following quadrants of risk?

Hazard risks

The use of risk quadrants to identify and categorize risk provides a framework for

Holistic risk identification.

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

Home Houseware's financial position as of the balance sheet date.

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?

Illness

Centrality measure

In a social network context, the quantification of a node's relationship to other nodes in the same network.

Standard Deviation is used

during the analysis of loss exposures to determine the possible spread of potential results. Greater the standard deviation between the values in the distribution, the more volatile they are. Higher the volatility, the more subject to change and less predictable the losses will be

Data Entry Company (DEC) offers customers data entry services. A customer can hire DEC to enter survey data to be analyzed. Many DEC employees spend long hours entering data on a computer. DEC has experienced neck strain and wrist pain complaints from their employees, increasing the company's workers compensation costs. DEC investigated the complaints of its data-entry employees. DEC adopted curved keyboards for data entry, wrist-rests for those entering data, and uniform chair heights and display monitor heights to reduce neck strain claims. The science of designing work spaces based on the health concerns of those who will operate in the work space is called

ergonomics

Scenario Analysis

identifies risks and predicts the potential consequences of those specific risks

Centrality Measures

in a social network context, the quantification of a node's relationship to other nodes in the same network

Unstructured Internal Data Examples

-Adjuster notes -Customer voice records -Surveillance videos

Internet of Things (IoT)

A network of objects that transmit data to computers.

After being promoted to a supervisory position, Henry decided that he needed to work on becoming an active listener. All of the following are elements of active listening:

-Attention -Suspension of judgement -Response

Metrics used to quantify strategic risk

-Economic capital -Risk-adjusted return on capital (RAROC) -Shareholder value added

Structured Internal Data Examples

-Policy Information -Claims history -Customer data

Acid-test ratio or Quick Ratio =

(Cash + Marketable securities + Accounts Receivable) / Current Liabilities

Three benefits of Value at Risk (VaR) as a risk measure

- Quantifies the potential loss associated with an investment decision - Articulates complex positions (typically involving multiple investments) as a single figure - Expresses loss in easy-to-understand monetary terms

Three Prevalent Human Resource Risks:

- Work-related injury and illness - Retirement and resignation - Work-related violence

After meeting with an external expert on climate change, an organization's risk professional will need to do all of the following

-Recommend a treatment technique for risks with severe potential -Identify those risks that are most likely to affect the organization -Assess the potential severity of the risks to the organization

Unstructured External Data Examples

-Social media -News reports -Internet videos

Structured External Data Examples

-Telematics -Financial data -Labor statistics

Four categories of loss likelihood in the Prouty Approach:

1. Almost nil: extremely unlikely to happen 2. Slight: could happen, but not likely 3. Moderate: happens occasionally 4. Definite: happens regularly

5 steps for the process for data-driven decisions:

1. Defining the risk management problem 2. Gathering quality data 3. Analyzing and modeling the problem 4. Determining insights by identifying trends, relationships, behavior, and events 5. Making decisions

Three categories of loss impact in the Prouty Approach:

1. Slight 2. Significant 3. Severe

Hold-harmless agreement (or indemnity agreement)

A contractual provision that obligates one of the parties to assume the legal liability of another party.

Which one of the following statements is true regarding key risk indicators (KRI)?

A KRI must be leading, rather than lagging, to be effective

Mission statement

A broad description of a firm's objectives and the scope of activities it plans to undertake

Pure risk

A chance of loss or no loss, but no chance of gain.

A plan fiduciary who fails to act according to plan documents has most clearly breached which one of the following fiduciary duties?

Adherence

One of the characteristics of individuals and groups of individuals that affects susceptibility to injury or death caused by a building fire is

Age

m (slope)

Amount by which y increases or decreases with a one unit increase along the x axis

The risk manager of a large manufacturing company has been asked by the CFO to develop a strategy to eliminate property damage at a particular site. Which one of the following risk control techniques can the risk manager use to reduce the probability of loss to zero?

Avoidance

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

Avoidance

One of the four characteristics that affects an individual's susceptibility to injury or death from a building fire is

Awareness of the fire

Which one of the following is a major benefit that blockchain technology provides to holistic risk management?

Because of their security, blockchains can eliminate the need to verify the accuracy of risk management data.

Carol has worked as a payroll clerk for a small organization for 20 years. Over the years she received only two small salary increases and began to embezzle funds from the company since she felt she was not adequately compensated for her job efforts. In terms of the quadrants of risk, Carol's theft risk can be classified as

Both a hazard risk and an operational risk.

Big data includes

Both structured and unstructured data

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

Box action design

What added benefit does CVaR provide that VaR does it?

CVaR helps analyze the extremely large losses that may occur, usually with very low probabilities, in the tail of a probability distribution

Under a large deductible plan, the amount that the insurer incurs to adjust losses

Can be inside or outside the deductible

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?

Carla should research the field and get a working understanding of wildfires

Which one of the following is a specific duty of a fiduciary supported by the Employee Retirement Income Security Act?

Carry out duties with the diligence of a prudent person

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?

Current ratio

Financial Risk

Effect of market forces on financial assets or liabilities; speculative risk

Volatility

Frequent fluctuations, such as in the price of an asset.

Debt to equity ratio =

Long-term debt / Shareholders' equity

Which one of the following is an example of a noncurrent liability?

Long-term notes payable

Logos

Reason

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

Value-at-risk.

Regression analysis assumes that the variable being forecast

Varies predictably with another variable.

When is shareholders' equity negative?

When Liabilities > Assets

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?

Putting the desired result at the forefront and making sure that everyone knows what group success looks like.

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

Qualitative assessment.

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?

Quantitative analysis

The physical stress on joints, bones, muscles, and nerves and the stress created by such factors as lighting, glare, and noise constitute

Ergonomic stress

Location is a key pre-loss activity to control earthquake damage because

Structures situated on stable earth can absorb most earthquake shock waves

Speculative risk

A chance of loss, no loss, or gain.

Steps for calculating standard deviation

1. Find the mean of the values in the distribution. 2. Subtract the mean from each individual value, and square the results. 3. Find the mean of those squared results. 4. Find the square root of that mean.

Steps in text mining process

1. Retrieve and prepare the text 2. Unstructured data is converted into structured data 3. Different techniques are used to create a data mining model to help the organization achieve its goals 4. Evaluate its effectiveness in multiple areas

Four Basic Characteristics of Root Cause Analysis

1. Specific Underlying Cause 2. Reasonably identified 3. Expressed as something that can be modified 4. Prevented through effective recommendations

The sum of probabilities in a probability distribution must be

1.00

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?

100

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. Based on a normal distribution, what percentage of points will likely fail after 110 days?

2.28% Percentage of points that is likely to wear out only after 110 days is 2.28% (the area above +2 standard deviations is 2.15 + 0.13 = 2.28)

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?

47.72%

Normal distribution percentage of outcomes

68% are within 2 standard deviations of the mean 95% are within 4 standard deviations of the mean 99% are within 6 standard deviations of the mean

Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss is classified as

A strategic risk

Classification Trees

A supervised learning technique that uses a structure similar to a tree to segment data according to known attributes to determine the value of a categorical target variable

Classification tree

A supervised learning technique that uses a structure similar to a tree to segment data according to known attributes to determine the value of a categorical target variable

Internal control

A system or process that an organization uses to achieve its operational goals, internal and external financial reporting goals, or legal and regulatory compliance goals.

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 systems risk

Which one of the following statements is true concerning robotic process automation (RPA)?

Although RPA can help control some organizational risks, use if RPA can create other risks.

Risk appetite

Amount of risk an organization is willing to take on in order to achieve an anticipated result or return.

risk appetite

Amount of risk an organization is willing to take on in order to achieve an anticipated result or return.

Job Safety Analysis (JSA)

An analysis that dissects a repetitive task, whether performed by a person or machine, to determine potential hazards if each action is not performed. Best for repetitive human tasks

Trend analysis

An analysis that identifies patterns in past data and then projects these patterns into the future

Change analysis

An analysis that projects the effects a given system change is likely to have on an existing system.

Exposure

Any condition that presents a possibility of gain or loss, whether or not an actual loss occurs.

Ideally insurable loss exposures are subject to losses that

Are definite in time, cause, and location.

Ideally insurance loss exposures are subject to losses that

Are definite in time, cause, and location.

In an effort to reduce expenses, increase profitability, and reduce human errors; ABC Insurance Company decided to automate most of its personal lines underwriting function. The company now uses standardized application forms that are submitted electronically to one of the company's regional offices. At each regional office, a computer with a scanner reads the applications. The computer has been programmed with acceptable answers to the questions. If the answers on the application are all acceptable, the policy is automatically issued. Rejected applications are automatically forwarded to a human underwriter who reviews them. The use of this technology has reduced the company's expense ratio by two and a half percent, and reduced the time it takes to issue a policy. ABC Insurance Company's use of computers to evaluate applications electronically is an application of

Artificial intelligence

Mutual Fund Company (MFC) offers a wide array of mutual fund options to investors. Each mutual fund has a different fund objective and set of investment guidelines that apply to the fund. While MFC gives considerable freedom to its fund portfolio managers, they are required to abide by the fund's investment guidelines. To monitor compliance, MFC developed a computer algorithm. The computer algorithm continuously monitors each fund's compliance with investment guidelines. If a fund manager violates the investment guidelines, the computer immediately notifies MFC's internal control director, and corrective action is taken. MFC's use of the computer algorithm to monitor investment compliance and to provide notification when corrective action is necessary illustrates use of

Artificial intelligence

Machine learning

Artificial intelligence in which computers continually teach themselves to make better decisions based on previous results and new data.

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?

Ask the internal audit department to administer a risk management questionnaire to employees.

The basic accounting equation on which the balance sheet is structured is

Assets = Liabilities + Net Worth

The balance sheet provides a snapshot of an organization's financial condition

At a given point in time.

Decision trees

Begins with identifying the decision under consideration. Offers visual portrayal of even sequences and outcomes and a means to calculate the best pathway through a problem.

The process of comparing the key risk indicators of an organization with those of other organizations in the same industry is known as

Benchmarking.

An advantage of a large deductible plan is that it allows the insured organization to

Benefit from the cash flow available on the retained loss reserves.

In addition to metal detectors, many airports have installed a second type of scanning technology for checked baggage and cargo. The checked bags and cargo pass through a portal with scanners programmed to detect and test for explosive trace fumes. These scanners, which detect explosives based on air samples, are an example of what type of sensor used for risk assessment and control?

Biochemical sensors

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

Blockchain

Which one of the following is described as a distributed database that serves as a collectively shared ledger?

Blockchain

Which one of the following technologies can provide the infrastructure upon which smart contracts are built and implemented?

Blockchain

Which one of the following statements about blockchain is true?

Blockchain stores a record of transactions across a network of servers.

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?

Bubble plot

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

Credit risk

Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical manufacturer. Because these are unrelated industries, Ivanhoe hope that any losses in one stock will be more than offset by profits in another. Ivanhoe is using which one of the following risk management techniques?

Diversification

The National Oceanic and Atmospheric Administration (NOAA), a U.S. Government agency, monitors tsunami risk. Earthquakes under the sea often cause large waves which can have a disastrous impact on coastal communities. In addition to monitoring earthquake data and tides, NOAA recently added a new tool -- tsunami detection buoys. The buoys are placed in the sea and they are equipped with sensors to detect high wave levels so that an early warning can be given to a coastal area if an evacuation is needed. This application of the use of smart products illustrates their use in

Catastrophe management

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

Causal factors.

Leasing is a useful noninsurance risk control transfer because

Certain loss exposures accompany property ownership but do not accompany its use or occupancy.

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?

Change analysis

Determining earnings-at-risk (EaR) entails modeling the influence of factors such as

Changes in the prices of products and production costs on an organization's earnings.

Ethos

Character

A post-loss action for a flood cause of loss is

Clearing drains of debris

Which one of the following occurs when individuals, departments, or teams from different areas work together to accomplish a shared organizational goal?

Collaboration

Hold-harmless agreements are

Comprised of two parties - the indemnitor and the indemnitee.

Autonomous Vehicle Applications (AVA) is a start-up company that develops safety technologies that can be sold to companies that are producing autonomous vehicles. One technology AVA is developing allows an autonomous vehicle to detect, extract, and analyze images; and then to respond to the images. For example, the technology would detect a presence in a crosswalk, extract the image, and a computer would analyze the image. When the image was determined to be a human being, the vehicle would slow down or stop until the crosswalk was clear. This technology, which is designed to capture and analyze images, and to act on the recognition of the image; is called

Computer vision

The emerging technologies applied to risk assessment and control link the physical domain to the virtual domain. Together, these domains linked by the emerging technologies create a

Connected ecosystem

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.

Which one of the following statements is true regarding the basic measures that apply to risk management?

Consequences measure the degree to which an occurrence could positively or negatively affect an organization.

Some buildings have modest economic value but still have high replacement costs. One prime reason for this might be because of

Construction styles that are large or ornate

Which of the following risk management program goals is an essential goal for all public entities?

Continuity of operations

An exculpatory clause is

Contractual provision that relieves one party from liability resulting from a negligent or wrongful act.

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

Control indicators

In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and personal auto insurance to the employees of its largest business lines account. Which one of the following risk measures is most likely to increase as a result of this marketing decision?

Correlation

Which one of the following is an example of exploratory data analysis?

Correlation matrix

Encouraging the expression of feelings as well as facts and following up with employees on the problems they report are two ways that managers and supervisors can

Cultivate two-way communication

Working capital =

Current assets - Current liabilities

Current ratio =

Current assets / Current liabilities

An important liquidity measure for a business is its working capital. Working capital is equal to

Current assets minus current liabilites

The risk control technique that spreads loss exposure over numerous projects, products, markets, or regions is which one of the following risk management techniques?

Diversification

A coefficient of variation is derived by

Dividing a distribution's standard deviation by its mean.

Economic data

Data regarding interest rates, asset prices, exchange rates, the Consumer Price Index, and other information about the global, the national, or a regional economy.

An organization may use a large deductible plan to achieve the purpose of which of the following?

Defer cash outflows for retained loss reserves

An organization may use a large deductible plan to achieve the purpose of which one of the following?

Defer cash outflows for retained loss reserves

The important first step in a decision-making model is to

Define the problem

Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. The provision supports the principle that insurable loss exposures must ideally be

Definite

Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be

Definite

The outcomes in a continuous probability distribution are called probability

Density functions

Linear Regression Line Graph

Dependent variable is on the y axis Independent variable is on the x axis

Gaining a holistic perspective requires

Developing a thorough understanding of each unit's role and how it supports or depends on other units and stakeholders.

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?

Discovering new relationships in data

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

Domino theory.

Which one of the following statements about the use of drones is true?

Drones may be equipped with cameras that relay data in real-time.

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

The control technique that uses backups, spares, or copies of critical property, information, or capabilities and keeps them in reserve is which one of the following risk management techniques?

Duplication

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?

Earnings at risk

Which one of the following statements is true if earnings at risk are $200,000 with 90% confidence?

Earnings at risk are projected to be less than $200,000 10% of the time

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?

Earthquake

Frame action design

Earthquake-resistant construction that relies on the resilience of steel or specially designed reinforced concrete to absorb energy while undergoing considerable distortion and return to their original shapes.

Pathos

Emotion

Take Your Order (TYO) is a company that specializes in taking product orders for vendors. The manufacturer of a product can run a television or internet ad for a product with a toll-free number. Customer calls for the products are routed to TYO, where one hundred operators are available to receive the calls. Each operator is assigned a cubicle with a computer terminal, video display monitor, and a telephone. TYO experienced high workers compensation claims from its operators, claiming neck strain, eye strain, and wrist pain. In an effort to reduce such injuries, TYO evaluated each operator's work area. The height of chairs and video monitors were adjusted, curved computer keyboards and wrist-rests were provided, and the telephones were replaced with audio headsets. Workers compensation costs dropped significantly. The science of designing work spaces based on interaction between people and the equipment in the work space is called

Ergonomics

Time horizon

Estimated duration

Hugh was recently hired as a risk manager for Malvern Manufacturing. He is preparing for his first presentation to the employees working on the manufacturing floor. Hugh realizes that he needs to establish credibility with the audience in order to be persuasive. He decides that he will tell a couple of stories about how he has dealt with similar situations in the past. Which one of the following modes of persuasion is Hugh using?

Ethos

Which one of the following statements is true regarding event tree analysis?

Event tree analysis typically provides only two options, success or failure.

Which one of the following statements about event tree analysis is true?

Event trees analyze the consequences of accidental events.

Which one of the following statements is accurate regarding pure and speculative risks?

Every business venture involves speculative risks

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

Exchange-rate risk

The weighted average of all the possible outcomes of a theoretical probability distribution is the

Expected value

Which one of the following provides a measure of the maximum potential damage associated with an occurrence?

Exposure

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?

External unstructured data

According to the technique of operations review approach, one category of fault of an organization's management is

Failure to take responsibility.

When an employee retires or resigns, the most significant loss to the organization is typically the

Future value that the individual would have provided to the organization

Broad form

General Contractor agrees to indemnify Building Owner for losses that result from General Contractor's sole fault, both parties' joint fault, or Building Owner's sole fault.

Limited form

General Contractor agrees to indemnify Building Owner only for claims that result from General Contractor's own negligence, often referred to as sole fault.

Intermediate form

General Contractor agrees to indemnify Building Owner only for claims that result from General Contractor's sole fault or from both parties' joint fault.

Which one of the following is a common problem with meetings that leaders should try to avoid?

Having the wrong people attend

HAZOP

Hazard and Operability study; comprehensive review of a process or system. Team of experts identifies the risks associated with a given process and recommends a solution. Good when all risks must be eliminated

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

Hazard and operability (HAZOP) study.

One of the levels of risk a business faces is the risk of accidental loss, including the possibility of loss or no loss. This category of risk is

Hazard risk.

Risks from accidental loss, including the possibility of loss or no loss defines

Hazard risk.

Which one of the following types of risks can result in losses but not in any gains?

Hazard risks

The original cost of a property is known as the

Historical cost

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?

Inadequate training

Continuous probability distributions

Infinite number of possible outcomes Investment exhibit

Risk criteria

Information used as a basis for measuring the significance of a risk.

Workplace disabilities can be categorized as injuries or illnesses. A work-related illness can result from which one of the following?

Inhalation

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

Interest rate risk.

Certain types of property losses such as drought, flood, and earthquake are referred to as natural because

It is beyond human control

Which one of the following is a benefit of the conditional value at risk (CVaR) method?

It takes into account the extremely large losses that may occur.

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?

Job safety analysis

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?

Job safety analysis

Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet?

Large number of similar exposure units

When negotiating noninsurance risk transfer terms, risk management professionals should consider the

Legal enforceability of contract provisions.

An organization must meet the standard of care that it owes to others in order to ensure that

Legal obligations are satisfied.

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

Life safety

Which one of the following is the initiating event in an event tree analysis?

Lightening strikes a warehouse building while it is closed for the weekend

Where is shareholders equity listed on the balance sheet and why?

Listed on the liabilities side because it "owes" its net worth to its owners

Mid-State Packing Company, a meat processing company, is the largest private sector employer in Metro City. First National Bank of Metro City loans money to Mid-State Packing Company and to many of the employees of Mid-State. The problem with First National Bank of Metro City loaning money to both the business and many employees of the business is that

Loan defaults are likely to be highly correlated.

Which one of the following statements is correct regarding formulating an organization's long-term strategies?

Long-term strategies to improve performance and/or create a competitive advantage, are based on the organization's goals and analysis of internal and external environments

A risk control technique that reduces the frequency of a particular loss is

Loss prevention

Which one of the following is a risk control technique that reduces the frequency of a particular loss?

Loss prevention

Which one of the following risk control techniques is generally used to reduce the frequency of a particular loss?

Loss prevention

A local shopping center reduced its net income loss after a fire by incurring additional expenses to shorten the time it takes to repair the damage and reopen the shopping center. Bob, the owner of the center, hired a contractor to work around the clock until repairs were completed. This reduced Bob's net income loss because he was able to repair the shops sooner. Bob's action is an example of which one of the following risk management techniques?

Loss reduction

A risk control technique that reduces the severity of a particular loss is

Loss reduction

Emerald Industries has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. Emerald installed state-of-the-art smoke detection devices throughout the facility. Emerald's state-of-the-art smoke detection devices are an example of

Loss reduction

The risk control technique that reduces the severity of a particular loss is which one of the following?

Loss reduction

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?

Predictive technique

Southwest Interstate Railroad (SIR) is concerned about the number derailments in recent years. It's not cost effective to use human assets to inspect tracks, bridges, and trestles. Instead, SIR has started to use drones. A drone can fly low over tracks and above/below bridges and trestles. The drones record video that is transmitted to corporate headquarters where it is simultaneously scanned for derailment hazards. In the past six months, the drones detected a track blockage caused by a rock slide and damage to tracks in a remote area cause by an earthquake. SIR dispatched work crews to make the tracks once again passable, and no derailments occurred. SIR's use of drones, video, real-term video scanning, and computer analysis illustrates which one of the following?

Preventative analytics

AMRM Insurance Company sells insurance in Virginia, North Carolina, South Carolina, and Georgia. The company has compiled a policyowner data base that can be used to send text messages when hurricanes approach. The company provides early warnings, storm updates from the National Weather Service, and hurricane safety measures. The company credits the system with reduced hurricane claims. The use of the texting system is an example of

Preventive analytics

Which one of the following statements is true with regard to preventive analytics?

Preventive analytics uses smart products and data analytics to identify root loss causes and their implications.

Which one of the following statements regarding probability is correct?

Probabilities associated with events such as coin tosses can be developed from theoretical considerations and are unchanging.

Theoretical probability

Probability that is based on theoretical principles rather than on actual experience. coin tosses/dice throws. Predictable as long as conditions remain the same

One category of operational risk includes procedures and practices organizations use to conduct their business activities. This category is

Process risk.

Process-based RCA

Production-based RCA (quality control procedures for industrial manufacturing) and includes business processes

Which one of the following risk management objectives is critical for a manufacturer seeking new capital from investors, stockholders, and creditors?

Reduce the deterrent effects of hazard risks

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

Reduce the severity of loss associated with the organization's loss exposures.

If an insurer wants to determine the numerical value for a known target variable, it is most likely to use

Regression

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

Regression analysis

Risk appetite is an important component of strategic risk management (SRM). Which one of the following statements is correct with respect to an organization's risk appetite?

Regulatory conditions, political risks, and anti-trust or other legal concerns can reduce an organization's risk appetite.

In order to achieve collaboration, group leaders must

Remain focused on preventing stakeholders from straying from the common goal.

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?

Replacement cost value

Asking a question such as "How do you think this will work out?" can help a speaker do which one of the following?

Request feedback and determine if the message has been understood

Concerning fundamental guidelines of contractual risk transfer management, it is wise to

Require a certificate of insurance for contractual liability before contractual operations begin.

A large deductible is similar to a self-insured retention (SIR) in that both

Require the insured organization to retain a relatively large amount of loss.

Strategic risk can be created and affected by external factors or internal factors. Which one of the following is considered an internal factor?

Resource allocation

Julian was having a conversation with Tania, one of his employees. At one point, Julian said, "What I hear you say is that you would like to take on more responsibility. Is that correct?" Which one of the following elements of active listening was Julian illustrating?

Response

Owners' equity represents the capital contributed by an organization's owners plus the organization's

Retained earnings

Which one of the following is the first step in the text mining process?

Retrieve and prepare text with preprocessing techniques

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

Risk control

Which one of the following statements is true regarding sources of risk affecting property exposures?

Risk control techniques can usually manage the likelihood and consequences of human risk sources to some extent

Don is the Risk Manager for Rafferty Corporation. One of his peers, Sally, asks him one day, "How do you define risk?" When Don replies, which one of the following statements is accurate?

Risk has different meanings within the risk management and insurance communities.

The difference between risk tech and insurtech is

Risk tech goes beyond insurtech by expanding its focus to making risk financing more efficient and preventing and mitigating losses in a variety of industries.

Which one of the following statements is correct with respect to risk tolerance?

Risk tolerance levels can have high-end thresholds, low-end thresholds, or both

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

Robotic process automation

Many auto manufacturers have automated a portion of their assembly lines by introducing a smart product. The smart product performs repetitive tasks, such as making the same weld on each vehicle frame as it passes the smart product. These smart products, which can be fixed or mobile, reduce repetitive motion injuries that humans might suffer. They can also be used to perform dangerous tasks and in heavy-lifting jobs. These smart products are called

Robots

A systematic procedure that uses the results of other analysis techniques to identify the predominant determinants of an accident is called

Root cause analysis.

Which one of the following is one of the five steps of the risk management process?

Scan environment

Which one of the following is one of the five steps of the risk management process? A. Scan environment B. Allocate resources C. Establish accountability D. Align and integrate

Scan environment

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?

Scenario analysis

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

Scenario analysis.

The process of creating a marketable investment security based on the expected cash flows from a financial transaction is

Securitization

An organization that operates warehouses in two locations is using the risk control technique of

Separation

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?

Strategic risk

Hardware Store has been able to control its prices and inventory since it has no competitors. A new highway currently being constructed is going to allow increased competition for Hardware Store. According to the quadrants of risk, this risk of increased competition falls into the category of

Strategic risk

George works for a large company and part of his job is to monitor assets according to their liquidity. George is particularly concerned that the company fleet cars are affecting its liquidity and rising fuel prices are having an adverse effect during tight economic markets. If George's concerns were categorized as causes of loss according to the quadrants of risk, his concern most directly relates to which one of the following types of risks?

Strategic risks

Strategy development is an important element of the strategic management process. Which one of the following statements is correct with respect to strategy development?

Strategies should reflect an understanding of the business, including its identity, customers, and purpose

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis. When Taylor completes his SWOT analysis in which quadrant of the SWOT analysis will he place reputation?

Strength

A data analysis technique that an insurer would likely use to analyze claims adjusters' notes is

Text mining

Which one of the following is a tool that can be used by fraud investigators to compare documents and analyze notes?

Text mining

A main difference between decision trees and event trees is

That event trees analyze the consequences of accidental events rather than decisions.

From a system safety perspective, change analysis is an analysis

That projects the effects a given system change is likely to have on an existing system.

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

The Delphi technique.

Collateralize

The act of pledging an asset, like real property, to secure a loan or investment by providing recourse in the event of default.

Causal factors

The agents that directly result in one event causing another.

Economic capital

The amount of capital required by an organization to ensure solvency at a given probability level, such as 99 percent, based on the fair value of its assets minus the fair value of its liabilities.

Risk tolerance

The amount of risk an organization is able to accept

Economic value

The amount that property is worth based on the ability of the property to produce income.

vision statement

The aspirational description of what an organization will accomplish in the long-term future

Which one of the following statements is true about an organization's balance sheet?

The balance sheet shows the financial position of a business on a specific date

Functional replacement cost

The cost of replacing damaged property with similar property that performs the same function but night be identical to the damaged property.

Which one of the following is the goal with strategic risk?

The goal is to use information about strategic risks to make informed decisions that optimize the risk-reward ratio.

Waiver

The intentional relinquishment of a known right.

Residual risk

The level of risk remaining after actions are taken to alter the level of risk.

Objective risk

The measurable variation in uncertain outcomes based on facts and data.

Betweenness

The measure of how many times a particular node is part of the shortest path between two other nodes in a network. Ex: Article posted online, readers click on cited references, read the thesis, and connect with the thesis' author. Article has a high degree of betweenness because it links two groups of people

Closeness

The measure of the average distance, or path length, between a particular node and the other nodes in a network. Ex: 2 employees. One employee is more in contact with others, so they will spread news faster

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?

The most frequently occurring value is seven.

Which one of the following statements about risk management monitoring and reporting is true?

The most important characteristic of a risk report format is that it is useful to the user

During the past year, International Toys has undertaken four capital projects. The company has renovated and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly, it has purchased a new production machine that will allow it to launch a new product line. Which one of the following company projects is the most speculative risk?

The new production machine

Historical cost

The original cost of a property.

Which one of the following statements is most accurate?

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

Cost of risk

The total cost incurred by an organization because of the possibility of accidental loss.

Clark's Electronics is considering launching new technology for the medical industry. Before investing major resources in the project, the company decided to perform a SWOT analysis. The fact that there are new medical industry regulations pending would fall under which one of the following quadrants of a SWOT analysis?

Threats

Aligning risks with the organization's risk appetite defines

Tolerable uncertainty.

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?

Tornado

Debt to assets ratio =

Total liabilities / Total assets

One enterprise risk management (ERM) approach to categorizing risks involves dividing risks into four risk quadrants. The risks categorized as hazard risks are

Traditionally managed by risk management professionals.

An analysis that identifies mathematical patterns in past losses and then projects these patterns into the future is

Trend analysis

Partridge Office Supplies has a history of theft losses as follows: Historical Amount Adjusted to DateAmountYear 3 Price Levels Year 1 2/16 $500 $590 3/30 $200 $236 4/16 $600 $708 8/15 $800 $944 Year 2 1/01 $1100 $1166 3/19 $700 $742 5/19 $4000 $4240 11/22 $1500 $1590 12/05 $4400 $4664 Year 3 4/04 $2000 $2000 5/21 $1400 $1400 7/09 $3500 $3500 10/11 $3700 $3700 12/24 $5600 $5600 12/27 $6000 $6000 During the last three years, Partridge has expanded its hours of operation to remain open 24 hours a day, 7 days a week. Partridge has also begun to carry a line of computer equipment, including small portable accessories such as flash drives, USB converters, and wireless accessories. Based on Partridge's loss history, the most appropriate forecasting technique is

Trend analysis

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

Trend analysis.

Strategic Risk

Trends in the economy and society; speculative risk

T/F: Decision trees can provide both qualitative and quantitative analysis

True

T/F: Risk appetite can be defined both quantitatively and qualitatively

True

T/F: Risk tolerance is always stated in quantitative terms

True

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?

Try to enrich individuals' work rather than merely expand it

Delphi technique

Two rounds of queries to the selected experts. Question and response cycle

Statutory limitations on hold-harmless agreements vary in the

Types of noninsurance transfers to which the statutes apply.

Enterprise-Wide Risks: Financial Risk

Uncertainties associated with the organization's financial activities; cash flow, interest rates, foreign exchange transactions, lines of credit, liquidity of assets, depreciating equipment, cost of raw materials

Systems-based RCA

combines four approaches with change management, risk management, and systems analysis concepts

Fair value

current fair market value

Liabilities

debts and obligations that represent claims against an organization's assets

Three modes of persuasion

ethos, pathos, logos

Assets - Liabilities =

owners equity, book value, surplus, shareholders' equity

b (y intercept)

point at which line crosses the y axis

Historical costs

price paid for assets

Insurance deals primarily with

pure risks.

Decision tree analysis and event tree analysis are similar in a number of ways, but differ in their

purpose

Production-based RCA

quality control procedures for industrial manufacturing

Financial risk

refers to the uncertainty about the future investment returns of a given asset and can be classified as market risk, credit risk, or price risk.

Assets

resources an organization owns or uses to operate its business

According to the law of large numbers, as the number of exposure units insured increases,

the relative accuracy of predictions about future losses increases.

Input price risk

the uncertainty of the price of the resources used to produce an organization's product

Expected value is

the weighted average of values. Weights are given to each value based on its theoretical probability (likelihood of occurrence). Referred to as the mean

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?

$1,468,540

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?

116

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?

50% because 50% of the normal distribution is below the 4,000 hour mean

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?

68.3%

Working capital

excess of a company's current assets over its current liabilities

Construction contracts typically hold the

landowner harmless for certain construction-related claims

Monte Carlo Simulation

A computerized statistical model that simulates the effects of various types of uncertainty

Risk control

A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable.

In both noninsurance risk control and noninsurance risk financing transfers,

A contract is usually formed before any loss occurs.

Forward contract

A contract that obligates one party to buy and another party to sell a specific financial instrument or physical commodity at a specified future date and price.

Exculpatory clause (exculpatory agreement)

A contractual provision purporting to excuse a party from liability resulting from negligence or an otherwise wrongful act.

Which one of the following is an example of a report that would most likely contain both quantitative and qualitative data?

A customer satisfaction survey

Sensor

A device that detects and measures stimuli in its environment

Accelerometer

A device that measures acceleration, motion, and tilt.

An excess liability insurance policy that covers a claim in excess of the underlying limits only if the loss is covered by the underlying policy is called

A following-form excess policy.

Neural networks

A form of artificial intelligence that enable a computer to learn as it accumulates more data Comprised of three layers: input, hidden, and output

Linear regression analysis

A form of regression that assumes that the change in the dependent variable is constant for each unit of change in the independent variable.

Risk management framework

A foundation for applying the risk management process throughout the organization.

PESTLE analysis

A framework used in strategic management for the purpose of assessing the external political, economic, sociological, technical, legal, and environmental arenas in which an organization operates.

Diversifiable risk

A risk that affects only some individuals, businesses, or small groups.

Scenario analysis

An analysis that involves brainstorming the worst conceivable set of events that could befall a system, projecting the consequences of those events, and suggesting ways in which those events could be prevented.

Energy transfer theory

An approach to accident causation that views accidents as energy that is released and that affects objects, including living things, in amounts or at rates that the objects cannot tolerate

Technique of Operations Review (TOR)

An approach to accident causation that views the cause of accidents to be a result of management's shortcomings.

Book value (net depreciated value)

An asset's historical cost minus accumulated depreciation.

Which one of the following statements is true regarding an effective risk reporting system?

An effective reporting system provides efficient information flow up and down the lines of authority

Business process management (BPM)

An enterprise-wide approach that looks to optimize business processes, making use of automatization when appropriate.

Credit risk is the same as

Counterparty risk

An analysis that projects the effects a given system change is likely to have on an existing system is known as

Change analysis

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?

Closeness

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?

Cluster analysis

Advancements in machine learning and artificial intelligence (AI) have helped insurers do all of the following, EXCEPT:

Completely prevent customers' risk

Advancement in machine learning and artificial intelligence (AI) have helped insurers do all of the following, EXCEPT:

Completely prevent customers' risk.

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

Credit risk

One type of noninsurance risk control transfer, a disclaimer of warranties, is used to

Deny any express warranties made in conjunction with the sale of property.

Samuel was recently hired as a risk management professional for Parker Property Management. He has been asked by senior management to review the organization's current insurance policies to make sure that the organization is adequately protected, and also see if there are any opportunities to save on the premiums. Samuel must do which one of the following through internal communication before he will be able to complete this task?

Determine the organization's risk appetite

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?

Discrete

A female supervisor consistently reprimands male, but not female, employees for using the Internet for personal use. This is an example of

Disparate treatment

Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification?

Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk.

Due to fierce local competition, the CEO of Apex Manufacturing is planning to expand into other geographical markets. Which one of the following risk control techniques, dealing primarily with business risk, is the CEO applying?

Diversification

Which one of the following data capture tools has led to an explosion of risk management innovation by allowing smart products to transmit data to each other and to central hubs?

Internet of Things

Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk?

Investing in shares of stock

Which one of the following best describes the categories of risk included in the enterprise risk management model?

Operational, strategic, financial, and hazard

EaR threshold

Low end of projected earnings within a specific confidence, such as 95%. EaR is helpful in comparing the likely effects of different risk management strategies on earnings.

Large deductible plans

Lower an organization's cost of risk

Large deductible plans..

Lower an organization's cost of risk

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?

Market value

Degree

Measure of the connections each node has. Ex: Number of external webpages the organization's webpage links to or the number of Facebook friends one of its sales associates has

Coefficient of Variation

Measures variation from a mean by dividing the standard deviation of a distribution by its mean. Often used to compare results from two different sets of data (such as surveys or tests) to learn which one has more variation

A municipal water plant installed water flow sensors and water pressure sensors on the water pipes leaving the plant. The sensors make sure water is flowing properly and that there are no leaks or clogs which could produce a loss. These types of sensors are

Mechanical sensors

The occupancy class characterized by a large number of people who gather in a space that is relatively unfamiliar to them is

Mercantile

Predictive approach

Method that can be used repeatedly to provide information for data-driven decision making by humans, computers, or both

Text mining

Obtaining information through language recognition

Olivia is planning a meeting to explain a new cyber security procedure. She expects that the meeting will be impeded by hidden agendas. Which one of the following is the best way for Olivia to deal with potential hidden agendas?

Olivia should start the meeting by asking participants to state their concerns or feeling about the procedure.

Jean is the Risk Manager for a Fortune 1000 company. Her CFO has tasked her to analyze vulnerabilities in the firm's supply chain. The adequacy of suppliers to meet an organization's needs would be an example of which one of the following types of risk?

Operational risk

Which one of the following statements is true regarding operational risk?

Operational risk is integrated in every activity of an organization

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

Operational risk.

Which one of the following analysis methods concentrates on an organization's competitive environment?

Porter's Five Forces analysis

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?

Production-based RCA

Which one of the following is a technique that can destroy motivation, rather than build it?

Promoting competition among units

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

Provides a measure of how sure Hank can be in his estimate of claims.

A predictive approach to data analytics involves

Providing a method to be used repeatedly to provide information.

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

Quantitative analysis.

Generalized linear model (GLM)

a statistical technique that increases the flexibility of a linear model by linking it with a nonlinear function

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?

Separation

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?

Sequence of events theory

Which one of the following theories of accident causation presumes that accidents are the result of a chain of accidental factors?

Sequence of events theory

Before speaking with a group or individual, the speaker should think about what he or she wants the other person(s) to do as a result of the conversation. Which one of the following steps in the communication process does the speaker complete by doing this?

Set a clear communication objective

Last year, three Metro City firemen died responding to a fire at a chemical plant, when they were overcome by toxic fumes. In response, Metro City is purchasing advanced first responder gear. It includes special flame retardant suits with chemical and explosive fume sensors, air quality sensors, and heat sensors. Responders will also wear special watches that will track a responder's pulse, respiration, and blood pressure; and helmets that include video cameras. All of these sensors will feed data to a computer in real-time. The computer will analyze the data and issue threat levels and evacuation orders, if necessary. The protective gear Metro City will purchase and the data transmission and analysis capability illustrate the use of

Smart products

Which one of the following is the most intangible and abstract of the four risk quadrants?

Strategic risk

Catastrophes such as recent earthquakes and the 2011 tsunami in Japan pointed out a need for many organizations to evaluate and manage their

Supply-chain risk.

Regarding diversifiable and nondiversifiable risk, which one of the following statements is accurate?

Systemic risks are generally nondiversifiable.

Which one of the following commonly used categories of operational risk includes risks associated with technology and equipment?

Systems

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

Technique of operations review (TOR) approach

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis. Which one of the following could Taylor's SWOT analysis consider an opportunity or a threat, or both an opportunity and a threat?

Technological advancements

Safety-based RCA

accident analysis and occupational safety and health

Replacement cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.

Which one of the following statements is true regarding the evolution of risk and risk management?

The definition of risk has evolved to include positive as well as negative attributes.

Fiduciary duty

The duty to act in the best interests of another.

Consequences

The effects, positive or negative, of an occurrence.

Which one of the following statements is true regarding a generic model of a securitization?

The organization sells income-producing assets to an SPV in exchange for cash

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

The organization's risk appetite and tolerance levels.

Subjective risk

The perceived amount of risk based on an individual's or organization's opinion.

Price risk

The potential for a change in revenue or cost because of an increase or a decrease in the price of a product or an input

Systemic risk

The potential for a major disruption in the function of an entire market or financial system.

Market value

The price at which a particular piece of property could be sold on the open market by an unrelated buyer and seller

What does the area under the curve to the left of the EaR threshold represent?

The probability that earnings will be below the EaR threshold.

Securitization

The process of creating a marketable investment security based on a financial transaction's expected cash flows.

Strategic risk management

The process of identifying, assessing, and managing risks that affect an organization's strategic decisions and performance.

Risk threshold

The range or amount of risk that is acceptable

risk threshold

The range or amount of risk that is acceptable.

Which one of the following statements is true with regard to linear regression analysis?

The regression line represents the "best fit" of a straight or smoothly curved line to actual historical data from prior periods

George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which of the following statements is true regarding the risk involved in George's options?

The rental property presents both pure and speculative risk; property values may increase, and the building could burn down.

Interest rate risk

The risk that a security's future value will decline because of changes in interest rates.

Liquidity risk

The risk that an asset cannot be sold on short notice without incurring a loss.

Enterprise-Wide Risks: Strategic Risk

Uncertainties associated with the organization's long-term goals and management decisions; mergers/acquisitions

Enterprise-Wide Risks: Operational Risk

Uncertainties associated with the organization's procedures, systems, and policies; compliance issues, legal issues, credit policies, customer service, software

Market risk

Uncertainty about an investment's future value because of potential changes in the market for that type of investment

Exchange rate risk

Uncertainty about an investment's value because of potential changes in the exchange rate between currencies.

Data analytics is especially useful for

Unstructured data

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?

Unstructured external

Disaster recovery plans for windstorms should reflect not only weather conditions, but also the difference in

Warning times

Clear-Rite Company specializes in the clean-up of hazardous chemical spills. Workers performing clean-up operations must use safety suits to prevent exposure to the chemicals. The suits include pulse and respiration monitors, body temperature sensors, and chemical sensors. The monitors and sensors report data to a mobile operations center which is deployed to each clean-up site. The pulse and respiration monitors and the sensors that are part of the protective gear are called

Wearable technologies

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

Weight of snow, sleet, and ice

Securities

Written instruments representing either money or other property, such as stocks and bonds.

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?

Wrongful termination

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis.His most dedicated customers are generally over 40 years old and engaged in small house projects, but his biggest revenue generator continues to be the sale of lumber. He would like to obtain more commercial customers and increase lumber sales. One of the major complaints Taylor hears from his customers is the difficulty finding local contractors. So, he is considering hiring a general contractor at the store who would also make house calls to assist customers. This will allow him to bill for labor and increase the sale of his products, but he is concerned it may increase his insurance claims and premiums. One of the younger store employees suggested they create a website to expand sales to on-line purchases and target electronic advertisements to commercial accounts. Taylor is not sure that he has the expertise to maintain a website and run the store. The employee claims to know a company that can maintain a website for Paoli at minimal cost. Taylor believes the website is a good idea and will increase sales of lumber. To protect Paoli from increases in the cost of lumber, Taylor is considering a forward contract with the lumber yard. If Taylor completed a PESTLE analysis instead of a SWOT analysis, the PESTLE analysis would include which one of the following?

increase in competition

Cloud computing

information, technology, and storage services contractually provided from remote locations, through the internet or another network, without a direct server connection

The fundamental purpose of a risk management framework is to

integrate risk management throughout the organization.

Input price risk or output price risk can lead to

loss of revenue

Liquidity ratios

measure a company's ability to convert assets to cash

If the company's debt to asset ratio is greater than 0.5, then

most of the company's assets are financed through debt

If assets are listed at historical cost instead of current fair market value,

net worth would not reflect the market value of the assets

Descriptive Approach

one-time solution to solve a specific problem.

SWOT Analysis

strengths, weaknesses, opportunities, threats; useful in analyzing a new project or product

If the company's debt to asset ratio is less than 0.5, then

the company is financing most of its assets through the equity contributions of its shareholders

Data mining

the process of extracting hidden patterns from data that is used in a wide range of applications for research and fraud detection

Why is the linear regression used?

to predict the numerical value of a target variable based on values of explanatory variables