ARM ARM Strategic Risk Management 2 — Questions and Answers
Question 1: Which of the following is the BEST example of a strategic risk facing a technology company?
- A server outage lasting two hours
- A minor accounting error in quarterly reports
- Rapid technological disruption rendering core products obsolete (Correct answer)
- A small increase in office supply costs
Correct answer: Rapid technological disruption rendering core products obsolete
Technological disruption that renders core products obsolete directly threatens a technology company's strategic viability and long-term survival.
Question 2: Scenario analysis in strategic risk management is used primarily to:
- Calculate exact future losses
- Examine potential future conditions and their impact on organizational strategy (Correct answer)
- Replace quantitative risk models
- Determine insurance coverage levels
Correct answer: Examine potential future conditions and their impact on organizational strategy
Scenario analysis evaluates how different plausible futures might affect strategic objectives and helps organizations prepare for uncertainty.
Question 3: The Board of Directors' primary role in strategic risk management is to:
- Perform day-to-day risk identification tasks
- Calculate actuarial risk estimates
- Purchase all required insurance policies
- Provide oversight and ensure risk management aligns with organizational strategy (Correct answer)
Correct answer: Provide oversight and ensure risk management aligns with organizational strategy
The Board provides governance-level oversight, setting the strategic direction for risk management and ensuring it supports organizational objectives.
Question 4: 'Risk culture' within an organization is most accurately described as:
- The number of risk management certifications held by staff
- The shared values, beliefs, and behaviors that shape how risk is managed (Correct answer)
- The total monetary value of insured assets
- The frequency of risk committee meetings
Correct answer: The shared values, beliefs, and behaviors that shape how risk is managed
Risk culture encompasses the collective attitudes and behaviors toward risk-taking and management that permeate an organization.
Question 5: Which of the following BEST describes 'emerging risks' in strategic risk management?
- Risks that have already caused major financial losses
- Risks that are fully quantified and well-managed
- Newly developing or evolving risks that are difficult to assess (Correct answer)
- Risks that have been transferred to third parties
Correct answer: Newly developing or evolving risks that are difficult to assess
Emerging risks are new or changing risks that lack historical data, making them challenging to quantify and manage proactively.
Question 6: Key Risk Indicators (KRIs) in strategic risk management are primarily used to:
- Replace traditional financial reporting
- Provide early warning signals of increasing risk exposure (Correct answer)
- Eliminate the need for risk assessments
- Determine executive compensation levels
Correct answer: Provide early warning signals of increasing risk exposure
KRIs are metrics that signal when risk levels are approaching unacceptable thresholds, enabling proactive management response.
ARM ARM Strategic Risk Management 2
Which of the following is the BEST example of a strategic risk facing a technology company?