Risk Management Flashcards
7 cards from real TRIP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management flashcards as text
A transportation risk manager is evaluating two risk financing options. Option A has a lower expected cost but higher variance; Option B has a higher expected cost but lower variance. A risk-averse manager would prefer:
Answer: Option B because of its more predictable outcomes
Risk-averse decision makers prefer predictable outcomes (lower variance) even at a higher expected cost, prioritizing financial stability over potential savings.
Which risk management concept holds that a company should not retain more risk than it can financially absorb without threatening its solvency?
Answer: Financial capacity constraint
Financial capacity constraint ensures that retained risk levels are calibrated to the company's balance sheet strength and liquidity to avoid existential financial harm.
In loss control terminology, a 'near miss' in transportation operations is valuable because it:
Answer: Provides a warning of hazardous conditions before an actual loss occurs
Near misses reveal existing hazards and systemic weaknesses that can be corrected before they result in actual injuries, property damage, or liability.
When a transportation company's risk manager presents the risk management program's results to senior management, the most meaningful metric to demonstrate program value is:
Answer: Reduction in total cost of risk (TCOR) over time
TCOR reduction demonstrates the net economic value of the risk management program by showing all costs are being managed and reduced over time.
A risk manager for a motor carrier uses loss runs to calculate a loss development factor (LDF). The primary purpose of applying LDFs is to:
Answer: Project immature losses to their ultimate settled value
Loss development factors adjust reported losses at a given point in time to estimate what they will ultimately cost when all claims are fully resolved.
Which risk treatment option is most consistent with a transportation company's decision to purchase a $1 million umbrella policy over its primary auto liability coverage?
Answer: Risk transfer for high-severity, low-frequency losses
Umbrella coverage transfers the financial risk of catastrophic, low-frequency but high-severity liability losses that exceed the primary policy limits.
An enterprise risk management (ERM) approach differs from traditional silo-based risk management in transportation primarily because ERM:
Answer: Views risks holistically across the organization and considers interdependencies
ERM integrates all risk types—operational, financial, strategic, and hazard—into a unified framework that recognizes how risks across business units interact and compound.