ESB Risk Management

Question 1

Which of the following best describes 'risk management' in the context of a small business?

Accepted Answer

Identifying, assessing, and prioritizing potential threats and taking actions to minimize their impact

Answer

Risk management involves identifying, assessing, and prioritizing risks, then implementing strategies to minimize or control their impact on the business.

Question 2

A small business owner purchases liability insurance to protect against lawsuits from customers. This is an example of which risk management strategy?

Accepted Answer

Risk transfer

Answer

Purchasing insurance is a classic example of risk transfer, where the financial burden of a potential loss is shifted to an insurance company.

Question 3

What is 'pure risk' in a small business context?

Accepted Answer

A risk that can only result in loss or no loss, with no possibility of gain

Answer

Pure risk only has two outcomes — loss or no loss — with no possibility of financial gain, such as fire damage or theft.

Question 4

An entrepreneur decides not to enter a highly litigious market segment to avoid potential lawsuits. This is an example of which risk strategy?

Accepted Answer

Risk avoidance

Answer

Risk avoidance means choosing not to participate in an activity that carries significant risk, eliminating the exposure entirely.

Question 5

Which document helps a small business identify critical operations and plan for continued functioning during a disaster?

Accepted Answer

Business continuity plan

Answer

A business continuity plan outlines how critical operations will continue during and after a disruptive event, minimizing downtime.

ESB - Entrepreneurship and Small Business Certification Practice Test

ESB - Entrepreneurship and Small Business Certification Practice Test

ESB Risk Management