Risk Control and Mitigation Strategies Flashcards
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Read the first 7 Risk Control and Mitigation Strategies flashcards as text
When selecting a risk control measure using cash flow analysis, the measure should be adopted if:
Answer: The net present value of its expected cash flows is positive
A positive NPV indicates the measure's discounted benefits, such as reduced losses and premiums, exceed its costs.
Which of the following is generally the most appropriate risk control strategy for a low-frequency, high-severity exposure such as an earthquake?
Answer: Loss reduction and contingency planning combined with risk transfer
Since earthquakes cannot be prevented, organizations focus on limiting severity, planning for recovery, and transferring the financial impact.
A business continuity plan primarily focuses on:
Answer: Maintaining or quickly restoring critical operations after a disruption
Business continuity planning ensures essential functions continue or resume quickly, reducing the severity of disruptions.
In business continuity management, the maximum time a critical process can be down before unacceptable consequences occur is used to set the:
Answer: Recovery time objective
The recovery time objective sets the target time for restoring a process before the outage becomes unacceptable.
A hospital installs a backup generator that automatically starts when utility power fails. This measure primarily reduces:
Answer: The severity of losses resulting from a power outage
The generator does not prevent outages, but it limits the consequences when they occur.
Which of the following is a post-loss risk control activity?
Answer: Crisis communication with media and stakeholders after an incident
Crisis communication after an event limits reputational and financial harm, making it a post-loss loss reduction measure.
Why might an organization adopt a risk control measure even if its cash flow analysis shows a negative net present value?
Answer: Because of legal requirements, social responsibility, or nonfinancial goals such as employee safety
Legal mandates, ethical duties, and goals like humanitarian concern or public image can justify measures that are not financially optimal.