Risk Treatment and Mitigation Flashcards
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Read the first 7 Risk Treatment and Mitigation flashcards as text
Which item is NOT a component of an organization's cost of risk?
Answer: Dividends paid to shareholders
Cost of risk includes premiums, retained losses, risk control costs, and administrative costs, but not shareholder dividends.
When evaluating a proposed risk control measure, a risk manager discounts its expected future after-tax cash flows and subtracts the initial cost. Which method is being used?
Answer: Net present value analysis
NPV compares the present value of future cash flows with the investment's upfront cost.
In Heinrich's domino theory, which domino did Heinrich consider the most practical to remove in order to prevent accidents?
Answer: The unsafe act or mechanical or physical hazard
Heinrich argued that removing the unsafe act or condition (the third domino) breaks the chain before an accident happens.
According to Haddon's energy release theory, what is the first and most basic strategy for preventing harm?
Answer: Prevent the creation of the hazard in the first place
Haddon's first strategy is to prevent the hazardous energy from being created at all.
For a loss exposure with low frequency but potentially catastrophic severity, which treatment is generally most appropriate?
Answer: Risk transfer, such as insurance, combined with risk control
Rare but severe losses could threaten solvency, so transfer is usually needed, ideally alongside risk control.
Which approach treats accidents as the result of failures in how system components (people, equipment, procedures, environment) interact?
Answer: Systems safety approach
Systems safety looks at the whole system and finds failures in how its components interact.
A risk control measure lowers expected losses but also slows production enough to cut revenue. When the risk manager judges whether the measure is worthwhile, this lost revenue should be:
Answer: Included as a cost when evaluating the measure's net cash flows
Cash flow analysis must include any revenue reductions the measure causes, not just its direct costs.