Financial Resilience & Budget Planning Flashcards

In resilience budgeting, what is a 'contingency reserve'?

Answer: Pre-approved funds set aside to address unforeseen costs during a disruptive event

A contingency reserve consists of pre-approved funds specifically set aside to cover unforeseen or unplanned expenses that arise during a disruption or recovery effort.

Which financial instrument transfers catastrophic risk from an organization to capital market investors by securitizing insurance risk?

Answer: Catastrophe bond (CAT bond)

Catastrophe bonds (CAT bonds) transfer catastrophic risk to capital market investors, providing organizations with financial protection against large-scale disruptive events while spreading the risk broadly.

What is the purpose of a 'recovery cost model' in financial resilience planning?

Answer: To estimate the total financial resources required to restore operations after a disruption

A recovery cost model estimates the total financial resources needed to restore operations to a normal state after a disruptive event, enabling proper financial planning and resource allocation.

How does diversification of revenue streams most directly contribute to an organization's financial resilience?

Answer: It reduces dependency on a single income source, minimizing impact when one stream is disrupted

Revenue diversification reduces an organization's dependency on any single income source, so if one stream is disrupted, others can continue to provide financial stability.

What does 'Total Cost of Resilience' (TCR) measure?

Answer: The complete financial investment in all resilience activities including planning, maintenance, and recovery

Total Cost of Resilience (TCR) measures the complete financial investment an organization makes across all resilience-related activities, including planning, training, technology, response, and recovery efforts.

Which financial metric measures how quickly an organization can convert its most liquid current assets into cash to meet emergency obligations, excluding inventory?

Answer: Quick ratio

The quick ratio (acid-test ratio) measures how rapidly an organization can convert its most liquid assets to cash for immediate obligations, deliberately excluding slower-moving inventory from the calculation.

What is the primary financial role of a Chief Financial Officer (CFO) in business continuity and resilience planning?

Answer: To ensure financial resources, insurance coverage, and recovery funding are aligned with continuity plans

The CFO's primary resilience role is ensuring that financial resources, insurance coverage, credit facilities, and recovery funding strategies are properly aligned with and support the organization's business continuity plans.