OC1- Chapter 1

What is Subjective Risk?

A subjective risk is the perceived amount of risk based on opinion.

What is Objective Risk?

An objective risk is the measurable variation in uncertain outcomes based on facts and data.

What are the four classifications of hazards?

Moral, Morale, Physical, Legal

What is Nondiversifiable Risk?

Nondiversifiable risks are correlated—that is, their gains or losses tend to occur simultaneously rather than randomly. Systemic risks are generally nondiversifiable.

Where do Operational Risks arise from?

Operational risks fall outside the hazard risk category and arise from people or a failure in processes, systems, or controls, including those involving information technology.

What is the pre- and post-loss goal conflict with Risk Management?

Post loss goal of expending risk management resources my conflict with the pre-loss goal of economy of operations.

What are some examples of intangible assets?

Professional qualifications, a unique skill set, valuable experience

What are the four types of loss exposures?

Property, Liability, Personnel, Net Income

Where do Strategic Risks arise from?

Strategic risks arise from trends in the economy and society, including changes in the economic, political, and competitive environments, as well as from demographic shifts.

What are the six post-loss goals?

Survival, Continuity of Operations, Profitability, Earnings Stability, Social Responsibility, Growth

What is Traditional Risk Management?

Traditional risk management focuses on loss exposures related to hazard risk. Traditional risk management for an organization has focused on managing safety, purchasing insurance, and controlling financial recovery from losses generated by hazard risk.

What is a legal hazard?

A condition of the legal environment that increases the frequency and/or severity of loss.

What is a hazard?

A condition that increases the frequency and/or severity of a loss

What is a morale hazard?

A person drives more reckless because he/she knows they have insurance.

What is a moral hazard?

A person tries to benefit from having insurance.

What is Pure Risk?

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

What is Diversifiable Risk?

Diversifiable risk is not highly correlated and can be managed through diversification, or spread, of risk.

What are the four pre-loss goals?

Economy of operations, Tolerable Uncertainty, Legality, Social Responsibility

What are the three financial consequences of risk?

Expected Cost of Losses or Gains, Expenditures on Risk Management, and Cost of Residual Uncertainty

What is Enterprise-Wide Risk Management?

(ERM) describes a broader view of risk management that encompasses both hazard risk and business risk, which further encompasses strategic, financial, and operational risks. ERM is an approach to managing all of an organization's key risks and opportunities to meet its goals, with the intent of maximizing the organization's value. Not at the department level.

What are the four steps of monitoring a risk management program?

1. Establishing standards of acceptable performance 2. Comparing actual results with these standards 3. Correcting substandard performance or revising standards that prove to be unrealistic 4. Evaluating standards that have been substantially exceeded

What are the three elements of loss exposure?

1.) Asset exposed to loss 2.) Cause of loss (peril) 3.) Financial consequences of loss

What are the reasons that subjective and objective risk can differ substantially?

1.) Familiarity and control 2.) Consequences over likelihood 3.) Risk awareness

What are the six steps to the risk management process?

1.) Identifying loss exposure 2.) Analyzing loss exposure 3.) Examining feasibility of Risk Management techniques 4.) Selecting the appropriate risk management technique 5.) Implementing the selected risk management technique 6.) Monitoring results and revising the risk management technique

What are some risk management techniques?

1.) Purchasing loss reduction services 2.) Contracting for loss prevention services 3.) Funding retention programs 4.) Implementing and continually reinforcing loss control programs 5.) Selecting agents or brokers, insurers, third-party administrators, and other providers for insurance programs 6.) Requesting insurance policies and paying premiums

What is a physical hazard?

A condition of property, persons, or operations that increases the frequency and/or severity of loss.

Where do Financial Risks arise from?

Financial risks arise from the effect of market forces on financial assets or liabilities and include market risk, credit risk, liquidity risk, and price risk.

What are the four dimensions for analyzing loss exposures?

Frequency, Severity, Total dollar losses in a specific time period, Timing of losses and payments

Where do Hazard Risks arise from?

Hazard risks arise from property, liability, or personnel loss exposures and are generally the subject of insurance.

What are the Quadrants of Hazard?

Hazard, Operational, Financial, and Strategic

What is Risk Management for Individuals and Organizations?

Individual: part of the financial planning process, often practiced informally without a risk management process. Small Org: Not a dedicated function, just one of the many tasks by the owner or senior manager. Large Org: Formalized risk management program.

What is the Cost of Residual Uncertainty?

Residual uncertainty is worry about the level of risk that remains after individuals or organizations implement their risk management plans.

What is Speculative Risk?

Speculative risk involves a chance of gain.

What is the pre- and post-loss goal conflict with legality?

The legality and social responsibility goals may conflict with the economy of operations goal. Some externally imposed obligations may be nonnegotiable.