Risk Management Framework Principles Flashcards

A company deliberately decides not to enter a politically unstable foreign market to eliminate the associated exposure. Which risk treatment is this?

Answer: Risk avoidance

Avoidance eliminates exposure by not undertaking, or by abandoning, the activity that gives rise to the risk.

Installing a sprinkler system in a warehouse primarily serves which purpose?

Answer: Loss reduction

Sprinklers reduce the severity of a fire once it starts rather than preventing it from occurring.

Which ISO 31000 principle requires appropriate and timely involvement of stakeholders so their knowledge, views, and perceptions are considered?

Answer: Inclusive

The inclusive principle ensures stakeholder involvement improves awareness and informed risk management.

In the COSO ERM 2017 framework, which component addresses board risk oversight and the desired organizational culture?

Answer: Governance and Culture

Governance and Culture covers board oversight, operating structures, desired culture, core values, and talent development.

A company tracks its key risk indicators monthly and updates its treatment plans when conditions change. Which ISO 31000 process step is this?

Answer: Monitoring and review

Monitoring and review ensures the quality and effectiveness of process design, implementation, and outcomes on an ongoing basis.

Which statement about residual risk is most accurate?

Answer: It is the risk remaining after risk treatment

Residual risk is the risk that remains after treatment has been implemented, and it may still contain unidentified risks.

A company acquires subsidiaries in unrelated industries so a downturn in one sector does not cripple the whole enterprise. Which risk management technique does this illustrate?

Answer: Diversification

Diversification spreads exposure across businesses whose results are not closely correlated, reducing overall volatility.