Risk Management Flashcards

The COSO ERM framework identifies how many interrelated components?

Answer: Eight

The original COSO ERM framework (2004) consists of eight interrelated components, later updated in 2017 to five components.

A manufacturer decides to discontinue a product line because the liability risk is too high. This risk response is called:

Answer: Risk avoidance

Risk avoidance eliminates the risk entirely by deciding not to engage in the activity that creates the risk.

Key Risk Indicators (KRIs) are best used to:

Answer: Provide early warning signals of increasing risk exposure

KRIs are forward-looking metrics that signal when risk levels are trending toward unacceptable thresholds.

Which term describes the risk that remains after management has implemented controls?

Answer: Residual risk

Residual risk is the level of risk exposure remaining after controls and other risk responses have been applied.

An organization's risk tolerance differs from risk appetite in that risk tolerance refers to:

Answer: The maximum acceptable variation around an objective before action is required

Risk tolerance is the acceptable deviation from risk appetite — the operational boundary within which management must stay.

Which of the following best describes a 'black swan' event in risk management?

Answer: A rare, unpredictable event with severe consequences

Black swan events are extreme outlier occurrences that are nearly impossible to predict but have massive impact when they occur.

Scenario analysis in risk management is primarily used to:

Answer: Evaluate how an organization would perform under different hypothetical conditions

Scenario analysis tests organizational resilience by modeling responses to various plausible future states.