Evolution of Risk Management
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Questions and Answers

What was the impact of the event 'Practice Widespread (1950s - 1970s)' on risk management?

  • Encouraged a reactive approach towards risk management.
  • Shifted focus from solely relying on risk financing to proactive risk management. (correct)
  • Increased insurance costs and limited coverage.
  • Promoted insuring only against insurable risks.

    • What concept was introduced during the 'Combined Approach (1970s)' event?

  • Risk control solely
  • Total coverage insurance
  • Risk financing only
  • Total cost of risk (correct)

    • In what time period did the expansion of risk management beyond insurance to other disciplines occur?

  • 1980s - Present (correct)
  • 1950s - 1970s
  • 1970s
  • Early 20th century - 1950s

    • What was the main focus of the development during the event 'Uninsurable Risks (1980s - Present)'?

    <p>Risk management tailored to different disciplines</p> Signup and view all the answers

    Which event in the evolution of risk management contributed to evaluating the full spectrum of risk costs and benefits?

    <p>Combined Approach (1970s)</p> Signup and view all the answers

    What impact did the event 'Early 20th Century - 1950s' have on risk management within the insurance industry?

    <p>Laid the foundation for cost-consciousness</p> Signup and view all the answers

    What is the main focus of organizations in the 'Conform' stage of risk management?

    <p>Ensuring compliance with risk control standards</p> Signup and view all the answers

    Which stage of risk management represents the highest level of sophistication?

    <p>Perform</p> Signup and view all the answers

    What does PACED stand for regarding risk management principles?

    <p>Proportionate, Aligned, Comprehensive, Embedded, Dynamic</p> Signup and view all the answers

    What is the main goal of a Risk Management Initiative?

    <p>Effectively managing risks</p> Signup and view all the answers

    Which factor determines the P in PACED in risk management principles?

    <p>Aligning with business activities</p> Signup and view all the answers

    What does the 'Perform' stage in risk management entail according to the text?

    <p>Actively seeking business opportunities</p> Signup and view all the answers

    What is the main focus of risk management in the energy sector?

    <p>The future price of energy and exploration risk</p> Signup and view all the answers

    What is the key difference between market risk and credit risk?

    <p>Market risk is associated with uncertainty, while credit risk is associated with the possibility of default.</p> Signup and view all the answers

    What is the main cause of operational risk?

    <p>Internal failures or disruptions causing financial losses</p> Signup and view all the answers

    What is the purpose of the '8R's and 4T's of (hazard) Risk Management Flowchart'?

    <p>To ensure that risk management is a flexible activity and avoids unchanging snapshots of risks</p> Signup and view all the answers

    What is the significance of COBIT in the context of IT risk management?

    <p>COBIT is a framework that provides specific standards applicable to IT risk management.</p> Signup and view all the answers

    Which of the following is NOT a key type of financial risk mentioned in the text?

    <p>Liquidity risk</p> Signup and view all the answers

    What are the three categories of emerging risks mentioned in the text?

    <p>New risks in known context, known risks in new context, new risks in new context</p> Signup and view all the answers

    What type of risk is associated with potential damage to an institution's reputation?

    <p>Reputational risk</p> Signup and view all the answers

    Which of the following is NOT a type of market risk?

    <p>Liquidity risk</p> Signup and view all the answers

    Which of the following is NOT one of the examples of uncontrollable emerging risks given in the text?

    <p>Changing demographic</p> Signup and view all the answers

    What is the distinguishing characteristic of hazard risks according to the text?

    <p>They pose potential harm or damage if they materialize.</p> Signup and view all the answers

    Which type of market risk arises from exposure to fluctuations in exchange rates?

    <p>Currency risk</p> Signup and view all the answers

    Which of the following is NOT a reason given in the text for the importance of risk assessment?

    <p>Mitigation of risks</p> Signup and view all the answers

    What type of risk relates to fluctuations in stock prices and their impact on the value of equity holdings?

    <p>Equity risk</p> Signup and view all the answers

    How should opportunity risks be viewed?

    <p>As potential benefits or advantages from emerging trends</p> Signup and view all the answers

    Which of the following is NOT a type of market risk mentioned in the text?

    <p>Inflation risk</p> Signup and view all the answers

    What is the purpose of using a risk matrix?

    <p>To demonstrate the level of risk an event represents</p> Signup and view all the answers

    What is mentioned as an important consideration when thinking about emerging risks?

    <p>The speed at which they can become significant</p> Signup and view all the answers

    Study Notes

    Scope of Risk Management

    • Established risk management within the insurance industry (Early 20th Century - 1950s)
      • Focused on minimizing insurance costs and maximizing coverage
      • Laid the foundation for cost-consciousness
    • Shifted focus from solely relying on insurance to proactive risk management (1950s - 1970s)
      • Identified and mitigated risks beyond insurable ones
      • Led to a broader risk perspective
    • Introduced the concept of "total cost of risk" (1970s)
      • Considered both risk financing and risk control for a holistic approach
      • Increased strategic decision-making by evaluating the full spectrum of risk costs and benefits
    • Expanded applications of risk management beyond insurance (1980s - Present)
      • Applied risk management to various disciplines like finance, project management, and supply chain
      • Developed specialized risk management frameworks and methodologies

    Principles and Aims of Risk Management

    • PACED principles:
      • Proportionate to the level of risk within the organization
      • Aligned with other business activities
      • Comprehensive, systematic, and structured
      • Embedded within business procedures and protocols
      • Dynamic, iterative, and responsive to change
    • Aims of Risk Management:
      • Managing risks effectively is the key to making goals become reality

    Types of Risks

    • Financial Risks:
      • Market Risk (systematic risk)
      • Credit Risk (borrowers defaulting on loans or payments)
      • Operational Risk (internal failures or disruptions causing financial losses)
    • IT Risk Management:
      • COBIT standard for IT risk management
    • Reputational Risk:
      • Potential damage to the institution's reputation
    • Market Risk:
      • Interest Rate Risk (exposure to changes in interest rates)
      • Currency Risk (exposure to fluctuations in exchange rates)
      • Commodity Risk (exposure to changes in commodity prices)
      • Equity Risk (exposure to fluctuations in stock prices)

    Risk Analysis and Evaluation

    • Risk Matrix:
      • Used to demonstrate the level of risk that a particular event represents to an organization
      • Represents the residual or current level of risk
    • Emerging Risks:
      • 3 categories:
        • New Risks in Known Context
        • Known Risks in New Context
        • New Risks in New Context
      • Examples:
        • Climate Change
        • Sovereign Debt
        • National Security
        • Changing Demographic Risks
    • Hazard, Control, and Opportunity Risks:
      • Hazard Risks: pose potential harm or damage to the organization
      • Control Risks: arise from the organization's internal processes, systems, or procedures
      • Opportunity Risks: potential benefits or advantages that may arise from emerging trends or changes

    Risk Assessment Considerations & Risk Classification Systems

    • Importance of Risk Assessment:
      • Identification of Risks
      • Prioritization of Risks based on likelihood and potential impact

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    Description

    Explore the historical development of risk management from the early 20th century to the 1970s. Learn about the shift from insurance-focused approaches to proactive risk management strategies.

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