PGI Risk Management Principles 1

Question 1

What is the 'risk management process' and what are its key steps?

Accepted Answer

Risk identification, risk assessment, risk treatment, and monitoring and review — a continuous cycle

Answer

Buying insurance to cover all identified risks

Answer

Writing risk reports for shareholders only

Answer

Outsourcing all risks to insurance companies

Question 2

What are the four main risk treatment strategies?

Accepted Answer

Avoidance, reduction, transfer (including insurance), and retention (acceptance)

Answer

Buy, sell, trade, and hold

Answer

Mitigate, arbitrate, litigate, and negotiate

Answer

Identify, measure, monitor, and report

Question 3

What is 'enterprise risk management' (ERM) and how does it differ from traditional risk management?

Accepted Answer

ERM takes a holistic, organization-wide view of all risk categories in an integrated framework, rather than managing risks in silos

Answer

ERM is identical to traditional risk management

Answer

ERM focuses only on financial risks

Answer

ERM is only applicable to financial institutions

Question 4

What is 'risk appetite' and how does it guide an organization's risk management?

Accepted Answer

The amount and type of risk an organization is willing to accept in pursuit of its strategic objectives

Answer

The organization's desire to eliminate all risks

Answer

The maximum insurance premium an organization will pay

Answer

The organization's historical claims experience

Question 5

What is the purpose of a 'risk register' in organizational risk management?

Accepted Answer

A documented record of identified risks, their assessment, ownership, and treatment plans, serving as the central tool for risk management

Answer

A register of all insurance policies held

Answer

A register of all employees with risk-related responsibilities

Answer

A list of insurance claims made in the past year

Question 6

What is the difference between 'inherent risk' and 'residual risk' in risk assessment?

Accepted Answer

Inherent risk is the risk before any controls are applied; residual risk is the risk remaining after controls are in place

Answer

They are the same concept with different names

Answer

Inherent risk applies to operational risks; residual risk to financial risks

Answer

Residual risk is always greater than inherent risk