Risk Management Questions and Answers
1. Briefly Describe the following terms:
a) Risk - The possibility of loss, damage, or any other adverse outcome due to uncertainty, which
may arise from various internal and external factors.
b) Risk Management - The systematic approach of identifying, assessing, and mitigating risks to
protect an organization's assets and objectives.
c) Risk Management Framework - A structured set of processes and policies designed to guide risk
management practices within an organization.
d) Risk Culture - The shared values, attitudes, and behaviors that influence how an organization
perceives and handles risk.
e) Risk Identification - The process of detecting potential threats and vulnerabilities that could impact
an organization's goals.
f) Risk Assessment - The evaluation of identified risks based on their probability of occurrence and
potential consequences.
2. Five principles under the COSO ERM 2017 - Integrating with Strategy and Performance:
- Governance and Culture - Establishing a risk-aware culture and strong leadership.
- Strategy and Objective-Setting - Aligning risk management with strategic goals.
- Performance - Evaluating risks in decision-making processes.
- Review and Revision - Continuously improving risk management strategies.
- Information, Communication, and Reporting - Ensuring transparent risk communication across all
levels.
3. Eight principles under the ISO 31000:2018 Risk Management Guidelines:
- Integration - Embedding risk management into all business activities.
- Structured and comprehensive approach - Ensuring consistency and thoroughness in risk
management processes.
- Customized to organization - Tailoring risk strategies based on specific organizational needs.
- Inclusive - Engaging all stakeholders in risk management decisions.
- Dynamic - Adapting risk management strategies to evolving circumstances.
- Best available information - Using reliable data for informed decision-making.
- Human and cultural factors - Considering employees' behaviors and organizational culture.
- Continuous improvement - Regularly updating risk management practices.
4. Briefly describe the following terms:
a) Risk Appetite Framework - A structured approach defining the risk levels an organization is willing
to accept in pursuit of its objectives.
b) Risk Appetite - The amount of risk an organization is willing to take to achieve its goals.
c) Risk Appetite Statement - A formal document outlining the organization's acceptable risk levels.
d) Risk Capital - The financial reserves allocated to cover potential risks and losses.
e) Risk Tolerance - The allowable level of variation in risk-taking, within the defined risk appetite.
5. Main factors to consider in developing risk appetite:
- Business objectives - Aligning risk-taking with strategic goals.
- Industry regulations - Complying with legal and regulatory requirements.
- Financial capacity - Assessing the organization's ability to absorb risks.
- Stakeholder expectations - Balancing risk-taking with investor and customer concerns.
- Past risk experiences - Learning from previous risk incidents.
6. Three key steps for an organization to effectively adopt risk appetite:
- Establish clear governance structures - Defining roles and responsibilities for risk management.
- Align risk appetite with strategic objectives - Ensuring risk-taking supports business growth.
- Regularly review and update risk appetite levels - Adapting to market changes and emerging
threats.
7. Key factors in developing and evaluating an effective risk appetite statement:
- Alignment with business strategy - Ensuring consistency with organizational goals.
- Clarity and measurability - Defining risk levels in quantifiable terms.
- Consideration of regulatory requirements - Complying with industry standards.
- Flexibility for adaptation - Allowing adjustments based on changing circumstances.
8. Relationship between risk appetite and risk tolerance:
- Risk appetite sets the overall risk boundaries, while risk tolerance specifies acceptable variations
within those limits.
- Example: A financial institution may have a low-risk appetite for loan defaults but allow small
deviations in bad debt percentages.
9. Risk Identification Techniques:
g) Brainstorming - Encouraging group discussions to identify potential risks.
h) Issue-based - Focusing on risks linked to specific business challenges.
i) Checklists - Using predefined lists of risks to ensure nothing is overlooked.
j) Structured or semi-structured interviews - Gathering insights from key stakeholders through direct
discussions.
k) Delphi Process - Collecting expert opinions to assess risk scenarios.
l) Scenario Analysis - Exploring potential risks through hypothetical situations.
m) Structured What-if (SWIFT) - Systematically evaluating risks by asking 'what-if' questions.
10. Input required for executing risk identification techniques:
- Expert knowledge - Leveraging insights from experienced professionals.
- Historical data - Analyzing past risk events to identify trends.
- Industry benchmarks - Comparing risks with industry standards.
- Stakeholder input - Incorporating feedback from employees and partners.
11. Procedure for risk identification techniques:
- Define objectives - Establishing the purpose of risk identification.
- Gather data - Collecting relevant information.
- Apply identification techniques - Using appropriate methods to detect risks.
- Document findings - Recording identified risks for further analysis.
- Review and refine - Improving risk identification over time.
12. Four risk response strategies:
- Avoidance - Eliminating activities that expose the organization to risk.
- Reduction - Implementing controls to minimize risk impact.
- Transfer - Shifting risk to a third party (e.g., insurance providers).
- Acceptance - Acknowledging and managing unavoidable risks.
13. Purpose of Monitoring and Review Exercise:
- Ensure risks remain within acceptable levels - Maintaining compliance with risk appetite.
- Improve risk management processes - Enhancing efficiency in risk mitigation.
- Identify new risks - Detecting emerging threats.
- Enhance decision-making - Providing data-driven insights for business strategy.
14. Five important activities in monitoring and review exercise:
- Risk tracking and reporting - Continuously assessing risk status.
- Regular risk reassessment - Updating risk evaluations as conditions change.
- Performance measurement - Evaluating risk management effectiveness.
- Compliance checks - Ensuring adherence to regulations.
- Continuous improvement - Refining risk management strategies.
