SPP Risk Management & Strategic Risk 2 — Questions and Answers
Question 1: What does PESTLE analysis assess in the context of strategic risk identification?
- Internal organizational strengths and process weaknesses
- Political, Economic, Social, Technological, Legal, and Environmental macro-environmental risks (Correct answer)
- Customer satisfaction and brand loyalty risks
- Supply chain efficiency and process bottleneck risks
Correct answer: Political, Economic, Social, Technological, Legal, and Environmental macro-environmental risks
PESTLE analysis systematically evaluates six categories of macro-environmental factors that represent external strategic risks facing the organization.
Question 2: In quantitative risk analysis, what does Expected Monetary Value (EMV) calculate?
- The total budget allocated for risk mitigation activities
- The average outcome of a decision weighted by the probability of each scenario (Correct answer)
- The maximum possible financial loss from a single risk event
- The cost of transferring risk to a third-party insurer
Correct answer: The average outcome of a decision weighted by the probability of each scenario
EMV multiplies the monetary value of each possible outcome by its probability and sums the results to produce the expected financial value of a risk or decision.
Question 3: Which analytical technique models thousands of scenarios with varying inputs to capture the compounding effects of multiple simultaneous risks?
- Siloed qualitative risk scoring
- Monte Carlo simulation (Correct answer)
- Simple sensitivity analysis
- SWOT risk mapping
Correct answer: Monte Carlo simulation
Monte Carlo simulation uses repeated random sampling across thousands of scenarios to model how combined uncertainties and risk interdependencies affect strategic outcomes.
Question 4: What is a 'risk owner' in enterprise risk management?
- The CEO who bears ultimate legal responsibility for all organizational risks
- An insurance company that has assumed a risk through a contractual policy
- An individual accountable for monitoring a specific risk and implementing its response (Correct answer)
- The board member who chairs the risk oversight committee
Correct answer: An individual accountable for monitoring a specific risk and implementing its response
A risk owner is the designated individual responsible for monitoring a specific identified risk, implementing mitigation measures, and reporting on its status.
Question 5: What does 'residual risk' represent after risk mitigation efforts have been applied?
- The risk level that remains after all mitigation and control actions have been implemented (Correct answer)
- The original inherent risk before any controls are applied
- Risks that have been fully eliminated through avoidance strategies
- New secondary risks inadvertently created by the mitigation strategy itself
Correct answer: The risk level that remains after all mitigation and control actions have been implemented
Residual risk is the level of exposure that persists after controls and mitigation strategies have been implemented, representing what must still be accepted or further addressed.
Question 6: Which risk identification technique uses iterative rounds of anonymous expert consultation to systematically identify and prioritize risks?
- Root cause analysis
- Delphi technique (Correct answer)
- Sensitivity analysis
- Fault tree analysis
Correct answer: Delphi technique
The Delphi technique uses multiple structured rounds of anonymous expert input and feedback to build consensus on risk identification and prioritization.
Question 7: In strategic risk management, how is a 'black swan' event characterized?
- A risk with both high probability and high financial impact
- A predictable risk that management consistently underestimates
- A rare, nearly unpredictable event with extreme consequences that falls outside normal expectations (Correct answer)
- A category of risk specific to the financial services and banking sector
Correct answer: A rare, nearly unpredictable event with extreme consequences that falls outside normal expectations
Black swan events, as described by Nassim Taleb, are rare and nearly impossible to predict in advance but carry catastrophic impact when they occur.
SPP Risk Management & Strategic Risk 2
What does PESTLE analysis assess in the context of strategic risk identification?