30 Questions
What was the impact of the event 'Practice Widespread (1950s - 1970s)' on risk management?
Shifted focus from solely relying on risk financing to proactive risk management.
What concept was introduced during the 'Combined Approach (1970s)' event?
Total cost of risk
In what time period did the expansion of risk management beyond insurance to other disciplines occur?
1980s - Present
What was the main focus of the development during the event 'Uninsurable Risks (1980s - Present)'?
Risk management tailored to different disciplines
Which event in the evolution of risk management contributed to evaluating the full spectrum of risk costs and benefits?
Combined Approach (1970s)
What impact did the event 'Early 20th Century - 1950s' have on risk management within the insurance industry?
Laid the foundation for cost-consciousness
What is the main focus of organizations in the 'Conform' stage of risk management?
Ensuring compliance with risk control standards
Which stage of risk management represents the highest level of sophistication?
Perform
What does PACED stand for regarding risk management principles?
Proportionate, Aligned, Comprehensive, Embedded, Dynamic
What is the main goal of a Risk Management Initiative?
Effectively managing risks
Which factor determines the P in PACED in risk management principles?
Aligning with business activities
What does the 'Perform' stage in risk management entail according to the text?
Actively seeking business opportunities
What is the main focus of risk management in the energy sector?
The future price of energy and exploration risk
What is the key difference between market risk and credit risk?
Market risk is associated with uncertainty, while credit risk is associated with the possibility of default.
What is the main cause of operational risk?
Internal failures or disruptions causing financial losses
What is the purpose of the '8R's and 4T's of (hazard) Risk Management Flowchart'?
To ensure that risk management is a flexible activity and avoids unchanging snapshots of risks
What is the significance of COBIT in the context of IT risk management?
COBIT is a framework that provides specific standards applicable to IT risk management.
Which of the following is NOT a key type of financial risk mentioned in the text?
Liquidity risk
What are the three categories of emerging risks mentioned in the text?
New risks in known context, known risks in new context, new risks in new context
What type of risk is associated with potential damage to an institution's reputation?
Reputational risk
Which of the following is NOT a type of market risk?
Liquidity risk
Which of the following is NOT one of the examples of uncontrollable emerging risks given in the text?
Changing demographic
What is the distinguishing characteristic of hazard risks according to the text?
They pose potential harm or damage if they materialize.
Which type of market risk arises from exposure to fluctuations in exchange rates?
Currency risk
Which of the following is NOT a reason given in the text for the importance of risk assessment?
Mitigation of risks
What type of risk relates to fluctuations in stock prices and their impact on the value of equity holdings?
Equity risk
How should opportunity risks be viewed?
As potential benefits or advantages from emerging trends
Which of the following is NOT a type of market risk mentioned in the text?
Inflation risk
What is the purpose of using a risk matrix?
To demonstrate the level of risk an event represents
What is mentioned as an important consideration when thinking about emerging risks?
The speed at which they can become significant
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
- 3 categories:
- 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
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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