Risk Management Flashcards

Which of the following is the FIRST step in a formal risk management process?

Answer: Identify and assess potential risks

The first step in risk management is identifying and assessing potential risks before any controls or mitigation strategies can be applied.

A small retailer installs a sprinkler system and fire extinguishers to reduce potential fire damage. This is an example of:

Answer: Risk reduction

Risk reduction involves taking proactive steps to lower the likelihood or severity of a risk, such as installing safety equipment.

What is 'speculative risk' in entrepreneurship?

Answer: Risk that can result in loss, gain, or no change

Speculative risk has three possible outcomes — gain, loss, or no change — making it inherent to entrepreneurial decision-making.

A small business uses a SWOT analysis partly to:

Answer: Identify internal and external risks alongside opportunities

A SWOT analysis helps identify Weaknesses and Threats — internal and external risk factors — alongside Strengths and Opportunities.

Which type of insurance specifically protects a small business owner if a client claims that professional advice caused them financial harm?

Answer: Professional liability (errors & omissions) insurance

Professional liability insurance (also called E&O) covers claims that a business's professional advice or services caused a client financial loss.

An entrepreneur signs a contract requiring a supplier to carry its own liability insurance for delivery accidents. This risk management technique is called:

Answer: Contractual risk transfer

Contractual risk transfer shifts risk responsibility to another party through contract terms, such as requiring suppliers to carry their own insurance.

What does a risk matrix help a small business owner do?

Answer: Prioritize risks based on likelihood and potential impact

A risk matrix plots risks by their probability of occurring against their potential impact, helping prioritize which risks need immediate attention.