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14 Cards in this Set

  • Front
  • Back
Risk evaluation is concerned with ?
Making decisions about the significance of risks to the organisation and whether those risks should be accepted or whether there should be an appropriate treatment or response.
What are the six step of Risk management cycle?

ID risk area

Understand and assess scale of risk

Develop risk management strategy

Implement strategy and allocate responsibility

Implement and monitor implementation of controls

Establish risk management group and goals

Many different frameworks have been proposed for the management of risk. These can, however, be synthesised to show that they tend to have the following elements in common

Risk assessment: How risks are identified

Risk reporting: Monitoring the operations of the risk management system

Risk treatment: How we respond to risks

Residual risk reporting

Risk identification aims to determine an organisation's exposure to uncertainty it requires?
An excellent knowledge of the organisation's objectives, its product/services and markets and the legal, political, economic, social and technological environment in which it exists.
Some of the methods of estimating risk are?

Failure mode and effects analysis

Fault tree analysis (FTA) and event tree analysis (ETA)

Hazard and operability studies (HAZOP)

Cost-benefit and risk-benefit analysis

Root cause analysis

Human reliability analysis (HRA)

Delphi method

Sensitivity analysis

Simulations and Monte Carlo

Soft systems analysis

Risk reporting includes:

A systematic review of the risk forecast at least annually.

A review of the management responses to the significant risks and risk strategy.

A monitoring and feedback loop on action taken and variance in the assessment of the significant risks.

An 'early warning system' to indicate material change in the risk profile, or circumstances, which could increase exposures or threaten areas of opportunity.

The inclusion of audit work as part of the communication and reporting process.

The four basic responses to risk are:





The basic principle of portfolio theory is ?
That it is less risky to have diverse sources of income through a portfolio of assets or investments. This may be achieved by a combination of market expansion or diversification.
Diversification involves spreading investments around into many types of investments.
Diversification reduces the risk of a portfolio but it does not necessarily reduce the returns.

The different types of diversification are:

Backward diversification

Forward diversification

Horizontal diversification

Unrelated diversification

Insurance involves ?

Protection against hazards by taking out an insurance policy against an uncertain event.

Insurance involves payment of a premium to an insurer, who will pay the sum assured to recompense loss suffered by the insured.

What is a derivative?
An asset whose performance is based on the behaviour of an underlying asset. Derivative instruments include options, forward contracts, futures forward rate agreements and swaps. Hedging protects assets against unfavourable movements in the underlying while retaining the ability to benefit from favourable movements

A framework for corporate risk disclosure comprises:

the voluntary or mandatory nature of disclosure.

investors' attitudes towards risk disclosure.

forms of risk disclosure, that is reported separately or grouped.

disclosure preference, that is whether all risks had equal importance.

location of disclosure, in the operating and financial review or elsewhere.

level of risk disclosure, whether current levels were adequate or if increased disclosure would help decision-making

Effective risk treatment will enable the board to consider?

The nature and extent of risks facing the organisation.

The extent and categories of risk which it regards as acceptable for the organisation to bear (the risk strategy).

The likelihood of risks materialising.

The costs and benefits of risk responses.