Risk Management Midterm Exam

Front 1

Risk Classifications

Back 1

1. Pure and Speculative risk

2. Subjective and objective Risk

3.Diversifiable and Nondiversifiable Risk

4. Static and dynamic risk

Front 2

Pure risk

Back 2

a chance of loss or no loss, but no chance of gain

(no opportunity of financial gain)

Front 3

speculative risk

Back 3

involves a chance of gain

Front 4

every business venture involves what kind of risk?

Back 4

Speculative risk

Front 5

Subjective risk

Back 5

risk assessments based on opinion

Front 6

Objective risk

Back 6

risk assessment based on fact

Front 7

Diversifiable risk

Back 7

risk that affects only some individuals, business, or a small group

Front 8

nondiversifiable risk

Back 8

risk that affects a large group of society at the same time

Front 9

systemic risk

Back 9

risk that disrupts the financial system

Front 10

Static risk

Back 10

risk that is always present for an organizaiton

Front 11

Dynamic risk

Back 11

Risk that results from economic change and emerging risk (climate change, internet privacy, terrorism, and new technology)

Front 12

possibility

Back 12

something may or may not occur

Front 13

uncertainty

Back 13

the inability to accurately predict the future

Front 14

possibility compared with probability

Back 14

possibility verifies the presence of risk. Probability qualifies the likelihood of risk actually occuring

Front 15

4 classifications of Hazards

Back 15

1. moral

2. morale

3. Physical

4. Legal

Front 16

Moral Hazard

Back 16

intentionally causing, fabricating, or exaggerating a loss. (deliberate act)

Front 17

Morale Hazard

Back 17

resulting from carelessness or indifference

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Physical Hazard

Back 18

a condition of property, persons, or operations that increases the frequency and/or severity of loss

Front 19

Legal Hazard

Back 19

is a condition of the legal environment that increases the frequency and/or the severity of loss.

Front 20

3 financial consequences of risk

Back 20

1. expected cost of losses or gains

2. expenditures on risk management

3. Cost of residual uncertainty

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Individual Practice risk

Back 21

to protect their limited assets from losses and to help make personal goals

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Organization practice risk

Back 22

help to ensure that losses or missed opportunities do not prevent it from meeting its goal

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individual risk management

Back 23

an informal series of efforts, not a formalized process

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Traditional Risk Management

Back 24

associated with loss exposure related mainly to pure risk

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Enterprise-wide risk management (ERM)

Back 25

an approach to managing all of an organization key risks an opportunities with the intent of maximizing the organization's value

Front 26

6 steps in the risk Management process

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1. identify loss exposure

2. Analyzing loss exposure

3. examine the feasibility of risk management techniques

4. Selecting the appropriate risk management techniques

5. Implementing selected risk management techniques

6. Monitoring results

Front 27

Risk control technique

Back 27

1. avoidance

2. loss prevention

3. loss reduction

4. seperation

5. duplication

6. diversification

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Risk financing technique

Back 28

1. transfer it

2. retain it

Front 29

2 categories of risk management program goals

Back 29

1. Pre-Loss Goal

2. Post-loss Goal

Front 30

Pre-loss goals (def)

Back 30

goals to be accomplished before a loss

Front 31

post-loss goals (def)

Back 31

the degree of recovery an organization will strive to reach following a loss

Front 32

the pre-loss goals

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1. economy of operations

2. tolerable uncertainty

3. legality

4. social responsibility

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the post-goals

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1. survival

2. continuity of operations'

3. profitability

4. earnings stability

5. social responsibility

6. growth.

Front 34

two elements of risk

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1. the uncertainty of risk

2. the possibility of a negative outcome

Front 35

4 types of loss exposure

Back 35

1. property

2. liability

3. personnel

4. net income

Front 36

3 elements of loss-exposure

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1. assest expose to loss

2. cause of loss

3. financial consequences

Front 37

3 types of Torts

Back 37

1. negligence

2. intentional tort

3. strict liability tort

Front 38

Cost of Risk components

Back 38

1. cost of accidental losses not reimbursed by insurance

2. insurance premiums

3. cost of risk control techniques

4. cost of administering risk management activities

Front 39

Theoretical probability

Back 39

probability based on theoretical principles rather than actual experience.

Front 40

Empirical probability

Back 40

probability based on actual experience

Front 41

The law of large numbers

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As the number of a similar but independent exposure increases, the relative accuracy of predictions about future loses increases

Front 42

the conditions of the law of large numbers

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1. the units must be independent

2. homogenous

Front 43

probability distribution

Back 43

the presentation of probability of a particular set of circumstances

Front 44

2 forms of probability distributions

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1. discrete

2. continuous

Front 45

discrete probability

Back 45

a finite of number of possible outcomes

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continuos probability

Back 46

a infinite number of possible outcomes

Front 47

measures of central tendency

Back 47

mean

median

mode

Front 48

central tendency

Back 48

represents the best guess as to what will occur

Front 49

Dispersion

Back 49

used to asses the credibility of measures of central tendency

Front 50

maximum possible loss

Back 50

the value exposed to loss at any one location

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maximum probable loss

Back 51

an estimate of the largest loss likely to occur