SPP Risk Management & Strategic Risk 1 — Questions and Answers
Question 1: What is the primary purpose of enterprise risk management (ERM) in strategic planning?
- To eliminate all organizational risks before strategy execution
- To align risk appetite with strategy and manage risks holistically across the organization (Correct answer)
- To transfer financial risks to insurance companies
- To create detailed incident response plans for operational teams
Correct answer: To align risk appetite with strategy and manage risks holistically across the organization
ERM aligns an organization's risk appetite with its strategy, enabling integrated, holistic risk management across all functions and levels.
Question 2: Which framework is most widely recognized as the global standard for enterprise risk management?
- Balanced Scorecard
- COSO ERM Framework (Correct answer)
- Six Sigma DMAIC
- Porter's Value Chain
Correct answer: COSO ERM Framework
The COSO ERM Framework (Committee of Sponsoring Organizations) is the globally recognized standard specifically designed for enterprise-wide risk management.
Question 3: What does 'risk appetite' mean in the context of strategic planning?
- The maximum financial loss an organization can sustain before insolvency
- The total number of risks catalogued in an organization's risk register
- The amount of risk an organization is willing to accept in pursuit of its strategic objectives (Correct answer)
- The probability that a risk event will occur within a given planning period
Correct answer: The amount of risk an organization is willing to accept in pursuit of its strategic objectives
Risk appetite represents the level and type of risk an organization is willing to accept while pursuing its strategic objectives, guiding decision-making at all levels.
Question 4: In a standard risk probability-impact matrix, which risk category demands immediate strategic attention?
- Low likelihood, low impact
- High likelihood, low impact
- Low likelihood, high impact
- High likelihood, high impact (Correct answer)
Correct answer: High likelihood, high impact
Risks that are both highly likely and highly impactful represent the greatest threat to strategy and must be prioritized for immediate mitigation.
Question 5: How is 'strategic risk' distinguished from operational risk?
- Strategic risks arise from day-to-day business operations and process failures
- Strategic risks threaten the organization's ability to achieve its long-term goals and execute its strategy (Correct answer)
- Strategic risks are limited to financial market volatility
- Strategic risks only encompass compliance and regulatory exposure
Correct answer: Strategic risks threaten the organization's ability to achieve its long-term goals and execute its strategy
Strategic risks are those that threaten the organization's capacity to execute its strategy and achieve long-term objectives, operating at a higher level than operational risks.
Question 6: Which risk response strategy involves accepting a risk without taking mitigation action because the cost of mitigation exceeds the potential loss?
- Risk avoidance
- Risk transfer
- Risk acceptance (Correct answer)
- Risk reduction
Correct answer: Risk acceptance
Risk acceptance is selected when the cost of mitigating a risk outweighs its potential impact, making it more economical for the organization to absorb the risk.
Question 7: What is the primary function of a risk register in strategic planning?
- A financial reserve set aside to cover potential losses from risk events
- A centralized document that records identified risks, assessments, owners, and planned responses (Correct answer)
- The legally required register of risks disclosed to shareholders in annual reports
- A software platform that automates quantitative risk calculations
Correct answer: A centralized document that records identified risks, assessments, owners, and planned responses
A risk register is the central tracking document that captures identified risks, their probability and impact ratings, designated owners, and mitigation actions.
SPP Risk Management & Strategic Risk 1
What is the primary purpose of enterprise risk management (ERM) in strategic planning?