Risk Management Flashcards

An enterprise risk management (ERM) framework primarily differs from traditional risk management because it:

Answer: Integrates risk management across the entire organization

ERM takes a holistic, enterprise-wide view of risk rather than managing risks in isolated departmental silos.

Which risk response strategy involves purchasing insurance to offset potential losses?

Answer: Risk transfer

Risk transfer shifts the financial consequence of a risk to a third party, such as an insurer.

A company's risk appetite is best described as:

Answer: The amount of risk an organization is willing to accept in pursuit of its objectives

Risk appetite reflects the board-approved level of risk an organization is willing to tolerate to achieve strategic goals.

In a risk heat map, a risk plotted in the upper-right quadrant typically indicates:

Answer: High likelihood and high impact

The upper-right quadrant of a heat map represents risks with both high probability and high impact, requiring immediate attention.

Which of the following is an example of inherent risk?

Answer: Risk present in an activity before any controls are applied

Inherent risk is the raw level of risk in a process or activity before any mitigation or controls are in place.

A company identifies that a new regulation could increase compliance costs significantly. This is best classified as:

Answer: Compliance risk

Compliance risk arises from the potential failure to meet legal, regulatory, or contractual obligations.

Which quantitative risk assessment technique uses repeated random sampling to model the probability of various outcomes?

Answer: Monte Carlo simulation

Monte Carlo simulation runs thousands of random trials to generate a probability distribution of possible outcomes.