CS Risk Management & Mitigation 3 — Questions and Answers
Question 1: Which of the following best describes a 'black swan' event in strategic risk management?
- A risk with high probability and low impact
- A predictable operational disruption
- A rare, unpredictable event with severe consequences (Correct answer)
- A risk that has been fully mitigated
Correct answer: A rare, unpredictable event with severe consequences
Black swan events, popularized by Nassim Taleb, are characterized by their rarity, extreme impact, and retrospective predictability.
Question 2: In the context of supply chain risk, 'single-sourcing' represents which type of risk concentration?
- Geographic concentration risk
- Supplier dependency risk (Correct answer)
- Currency exchange risk
- Regulatory compliance risk
Correct answer: Supplier dependency risk
Single-sourcing creates supplier dependency risk because disruption to one vendor can halt the entire supply chain with no alternative.
Question 3: A risk heat map plots risks according to which two dimensions?
- Cost and duration
- Likelihood and impact (Correct answer)
- Owner and priority
- Category and source
Correct answer: Likelihood and impact
Risk heat maps visually display risks by plotting their probability of occurrence on one axis and their potential impact on the other.
Question 4: Which of the following is an example of a proactive risk mitigation strategy in strategic management?
- Filing an insurance claim after a facility fire
- Diversifying product lines before a market downturn occurs (Correct answer)
- Issuing a press release after a data breach
- Laying off employees following a revenue decline
Correct answer: Diversifying product lines before a market downturn occurs
Proactive mitigation involves taking preventive action before a risk materializes, such as diversifying to reduce market concentration risk.
Question 5: Under the ISO 31000 risk management standard, what is the correct sequence of the risk management process?
- Identify → Monitor → Assess → Treat
- Assess → Identify → Treat → Monitor
- Identify → Assess → Treat → Monitor & Review (Correct answer)
- Treat → Identify → Monitor → Assess
Correct answer: Identify → Assess → Treat → Monitor & Review
ISO 31000 specifies the process as: risk identification, risk assessment, risk treatment, and then ongoing monitoring and review.
Question 6: A strategist encounters 'risk interdependency,' where one risk event triggers another. This is best managed through:
- Treating each risk in complete isolation
- Scenario analysis and stress testing that models cascading effects (Correct answer)
- Ignoring secondary risks to reduce complexity
- Transferring all interdependent risks to insurers
Correct answer: Scenario analysis and stress testing that models cascading effects
Scenario analysis and stress testing allow strategists to model how one risk event can cascade into others, revealing hidden interdependencies.
Question 7: A company decides to exit a high-risk market entirely to eliminate exposure. Which risk response does this represent?
- Accept
- Transfer
- Mitigate
- Avoid (Correct answer)
Correct answer: Avoid
Risk avoidance involves completely eliminating exposure to a risk by discontinuing the activity or exiting the situation that creates it.
CS Risk Management & Mitigation 3
Which of the following best describes a 'black swan' event in strategic risk management?