Risk Management Principles Flashcards
6 cards from real PGI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Risk Management Principles flashcards as text
What is 'key risk indicator' (KRI) and how does it differ from a 'key performance indicator' (KPI)?
Answer: KRIs are forward-looking metrics signaling potential risk events before they occur; KPIs measure past performance outcomes
KRIs are early warning indicators that signal increasing risk exposure before a loss event occurs (e.g., staff turnover rate as a KRI for operational risk). KPIs measure historical performance outcomes. KRIs are predictive; KPIs are retrospective.
What is 'scenario analysis' in risk management?
Answer: A technique examining the potential impact of specific hypothetical events or combinations of circumstances on an organization's risk exposure and financial position
Scenario analysis explores how specific events or combinations of circumstances (e.g., a major earthquake plus economic downturn) would impact the organization. It helps identify vulnerabilities and stress-test risk management frameworks against plausible extreme events.
What is 'moral hazard' in the context of risk management beyond insurance?
Answer: The risk that a party insulated from risk takes more risks than they otherwise would, because the consequences fall on another party
Moral hazard in risk management refers to the tendency of a party protected from consequences (by insurance, guarantees, or bailouts) to take greater risks than they would if fully exposed to the consequences of their actions.
What is 'risk tolerance' and how does it differ from 'risk appetite'?
Answer: Risk appetite is the desired level of risk; risk tolerance is the acceptable deviation from that appetite before requiring management action
Risk appetite sets the desired or target level of risk for the organization. Risk tolerance defines the acceptable variation around the risk appetite — the boundaries within which actual risk can deviate before remedial action is required.
What is 'risk aggregation' in an insurance or financial services context?
Answer: The process of combining individual risk exposures to understand the total risk faced by the organization, identifying concentration and correlation effects
Risk aggregation combines individual risk exposures to understand total organizational risk, identifying where risks accumulate (concentrations) or reinforce each other (correlations) — enabling holistic risk management that individual silos would miss.
What is 'business impact analysis' (BIA) and how does it support risk management and insurance?
Answer: A process identifying critical business functions, assessing the impact of their disruption, and determining recovery time objectives — informing both business continuity planning and BI insurance adequacy
BIA systematically identifies which business functions are most critical, quantifies the financial impact of their disruption over time, and sets recovery time objectives. This directly informs business continuity planning and helps determine appropriate BI insurance indemnity periods and sums insured.