ARM - Associate in Risk Management Hazard and Operational Risks Questions and Answers

Question 1

A smartphone manufacturer relies exclusively on one supplier in a single geographic region for its high-resolution camera sensors.
A fire at the supplier's factory halts production for six months, causing a major disruption.
This situation is a primary example of which type of operational risk?

Accepted Answer

Process risk due to single-source dependency.

Answer

People risk stemming from inadequate employee training.

Answer

Systems risk related to internal software failure.

Answer

Legal risk from non-compliance with regulations.

Question 2

When insuring a commercial building, an organization chooses a valuation method that will pay the cost to repair or replace the damaged property with materials of like kind and quality, without any deduction for depreciation. Which property valuation method is being used?

Accepted Answer

Replacement Cost (RCV)

Answer

Actual Cash Value (ACV)

Answer

Functional Replacement Cost

Answer

Market Value

Question 3

An organization is heavily dependent on its lead software architect, who possesses unique, undocumented knowledge critical to the company's core product. Which of the following best describes this operational risk and a common risk financing technique used to address it?

Accepted Answer

Key person risk; managed by purchasing key person life and disability insurance.

Answer

Reputational risk; managed by public relations campaigns.

Answer

Systemic risk; managed by diversifying the company's product lines.

Answer

Legal risk; managed by retaining a corporate law firm.

Question 4

A plastics manufacturing plant experiences a fire that severely damages its primary production line, forcing a shutdown for three months. While property insurance covers the cost to repair the machinery, the company loses $5 million in profits and incurs extra expenses to outsource some production temporarily. These lost profits and extra expenses are classified as what type of loss?

Accepted Answer

Business income (interruption) loss

Answer

Direct loss

Answer

General liability loss

Answer

Asset depreciation loss

Question 5

Following a significant operational failure where a batch of product was contaminated, a risk manager leads an investigation. The team repeatedly asks "Why?" to trace the issue from the immediate cause back to underlying management system weaknesses. Which analysis technique is being applied?

Accepted Answer

Root Cause Analysis (RCA)

Answer

Event Tree Analysis (ETA)

Answer

Failure Mode and Effects Analysis (FMEA)

Answer

Scenario Analysis

Question 6

A company operating a large fleet of delivery vehicles installs a telematics system that monitors speed, braking patterns, and route adherence. The data is used to provide targeted coaching to drivers and enforce safety policies. This implementation is primarily an example of which risk control technique?

Accepted Answer

Loss Prevention

Answer

Risk Avoidance

Answer

Risk Transfer

Answer

Loss Reduction