ARM 54

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gatorlea92
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298629
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ARM 54
Updated:
2015-03-17 20:02:22
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RISK MANAGEMENT EKU
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ARM 54 EXAM STUDY
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  1. RISK
    UNCERTAINTY ABOUT OUTCOMES THAT CAN BE EITHER NEGATIVE OR POSITIVE
  2. RISK MANAGEMENT
    THE PROCESS OF MAKING AND IMPLEMENTING DECISIONS THAT WILL MINIMIZE THE ADVERSE EFFECTS OF ACCIDENTAL LOSSES ON AN ORGANIZATION
  3. BUSINESS RISK
    RISK THAT IS INHERENT IN THE OPERATION OF A PARTICULAR ORGANIZATION, INCLUDING THE POSSIBILITY OF LOSS, NO LOSS, OR GAIN.
  4. HAZARD RISK
    RISK FROM ACCIDENTAL LOSS, INCLUDING THE POSSIBILITY OF LOSS OR NO LOSS.
  5. LOSS EXPOSURE
    ANY CONDITION THAT PRESENTS A POSSIBILITY OF LOSS, WHETHER OR NOT AN ACTUAL LOSS OCCURS.
  6. ENTERPRISE RISK MANAGEMENT ERM
    AN APPROACH TO MANAGING ALL OF AN ORGANIZATIONS KEY BUSINESS RISKS AND OPPORTUNITIES WITH THE INTENT OF MAXIMIZING SHAREHOLDER VALUE.
  7. IDENTIFY THE POSSIBLE MEANINGS OF RISK APART FROM UNCERTAINTY ABOUT OUTCOMES THAT CAN BE EITHER NEGATIVE OR POSITIVE.
    THE POSSIBLE MEANINGS OF RISK INCLUDE THE FOLLOWING: -THE SUBJECT MATTER OR AN INSURANCE POLICY -THE INSURANCE APPLICANT (THE INSURED) - THE POSSIBILITY OF A LOSS OR INJURY - A CAUSE OF LOSS (OR PERIL) - VARIABILITY ASSOCIATED WITH A FUTURE OUTCOME.
  8. LIST THE SIX STEPS IN THE RISK MANAGEMENT PROCESS.
    • 1. IDENTIFY LOSS EXPOSURES
    • 2. ANALYZE LOSS EXPOSURES
    • 3. EXAMINE THE FEASIBILITY OF RM TECHNIQUES
    • 4. SELECT THE APPROPRIATE RM TECHNIQUES
    • 5. IMPLEMENTING THE SELECTED RM TECHNIQUES
    • 6. MONITOR THE RESULTS AND REVISING THE RM PROGRAM
  9. EXPLAIN WHY RISK MANAGEMENT IS AN ONGOING PROCESS.
    RM IS AN ONGOING PROCESS BC PAST CHOICES OF RM TECHNIQUES MUST CONTINUALLY BE REEVALUATED IN LIGHT OF CHANGES IN THE FOLLOWING. - RELATIVE COSTS, LEGAL REQUIREMENTS, GOALS, ECONOMIC ENVIRONMENT, RESOURCES AND ACTIVITIES.
  10. HOW DOES HAZARD RISK DIFFER FROM BUSINESS RISK?
    • HAZARD RISK RESULTS IN ONLY TWO OUTCOMES: LOSS OR NO LOSS.
    • BUSINESS RISK CAN RESULT IN EITHER LOSS, NO LOSS, OR GAIN.
  11. EXPLAIN HOW ENTERPRISE RISK MANAGEMENT DIFFERS FROM TRADITIONAL RISK MANAGEMENT.
    ERM IS BOTH HAZARD RISK AND BUSINESS RISK; TRM FOCUSES ON HAZARD RISK. -ERM SEEKS TO ENABLE AN ORGANIZATION TO FULFILL ITS GREATEST PRODUCTIVE POTENTIAL; TRM SEEKS TO RESTORE AN ORGANIZATION TO ITS FORMER PRE-LOSS CONDITION.
  12. DESCRIBE THE FOUR CATEGORIES OF RISK USED BY SOME ERM MODELS.
    • 1. STRATEGIC RISK- UNCERT. W/ LONG TERM GOALS AND MANAGEMENT
    • 2. OPERATIONAL RISK- UNCERT. W/ OPERATIONS
    • 3. FINANCIAL RISK- UNCERT. W/ FINANCIAL ACTIVITIES
    • 4. HAZARD RISK- UNCERT. W/ REDUCTION IN VALUE RESULTING FROM THE EFFECTS OF ACCIDENTAL LOSSES
  13. USING THE ENTERPRISE RM MODEL, CATEGORIZE THE FOLLOWING RISKS:
    A. COST OF MATERIALS INCREASE
    B. REGULATORY SANCTIONS BLOCK LAUNCH OF NEW PRODUCT
    C. SECURITIES AND EXCHANGE COMMISSION INVESTIGATE ACCOUNTING PRACTICES
    • A. OPERATIONAL RISK
    • B. STRATEGIC RISK
    • C. STRATEGIC RISK
  14. USING THE ENTERPRISE RM MODEL, CATEGORIZE THE FOLLOWING RISKS:
    D. COMPUTER HACKERS STEAL CONFIDENTIAL INFORMATION
    E. COMPETITOR HIRES KEY EMPLOYEES
    F. CUSTOMER FILES FOR BANKRUPTCY
    G. SOME CONSUMERS EXPERIENCE AN ALLERGIC REACTION
    • D. HAZARD RISK
    • E. STRATEGIC RISK
    • F. STRATEGIC RISK
    • G. HAZARD RISK
  15. USING THE ENTERPRISE RM MODEL, CATEGORIZE THE FOLLOWING RISKS:
    H. MANUFACTURING FACILITIES IN IRAQ ARE THREATENED BY INSURGENTS
    I. US DOLLAR FALLS AGAINST THE EURO, MAKING THE ORGANIZATION DEBT MORE EXPENSIVE TO PAY
    • H. STRATEGIC RISK
    • I. FINANCIAL RISK
  16. USING THE ENTERPRISE RM MODEL, CATEGORIZE THE FOLLOWING RISKS:
    J. UNION CALLS FOR A "SICK-OUT"
    K. MERGER PLANS FALL THROUGH
    L. POLLUTION
    M. CREDIT RATINGS REDUCED BY A CREDIT RATING AGENCY, RESULTING IN INCREASED COST OF BORROWING
    • J. STRATEGIC RISK
    • K. STRATEGIC RISK
    • L. HAZARD RISK
    • M. FINANCIAL RISK
  17. COST OF RISK
    THE TOTAL COST INCURRED BY AN ORGANIZATION BC OF THE POSSIBILITY OF ACCIDENTAL LOSS
  18. IDENTIFY THE THREE BROAD CATEGORIES OF COSTS IMPOSED BY ACCIDENTAL LOSSES.
    • 1. REDUCTION IN PROPERTY VALUE, INCOME, EARNING CAPACITY, OR QUALITY OF LIFE BC OF DAMAGE, DESTRUCTION OR INJURY.
    • 2. LOSS OF NET BENEFITS THAT COULD HAVE BEEN GAINED FROM DETERRED ACTIVITIES.
    • 3. COST OF RESOURCES DEVOTED TO MANAGING ACCIDENTAL LOSS.
  19. IDENTIFY WHAT IS INCLUDED IN AN ORGANIZATIONS COST OF RISK.
    • COSTS OF ACCIDENTAL LOSSES NOT REIMBURSED BY INSURANCE
    • INSURANCE PREMIUM OR EXPENSES INCURRED FOR NON-INSURANCE INDEMNITY
    • COSTS OF RISK CONTROL TECHNIQUES TO REVENT OR REDUCE THE SIZE OF ACCIDENTAL LOSSES
    • COST OF ADMINISTERING RM ACTIVITIES
  20. IDENTIFY THE BENEFITS OF RISK MANAGEMENT FOR THE ENTIRE ECONOMY.
    • REDUCE WASTE OF RESOURCES
    • MIN. THE WASE AND NEED TO USE PRODUCTIVE RESOURCES TO RESTORE DAMAGE FROM ACCIDENTAL LOSS
    • IMPROVED ALLOCATION OF PRODUCTIVE RESOURCES
    • IMPROVES WILLINGNESS OF MANAGEMENT TO UNDERTAKE RISK ACTIVITIES THAT MIGHT MAX. PROFIT.
  21. CALCULATE THE COST OF RISK:
    RM DEPARTMENT BUDGET -$1.2 MIL
    RETAINED LOSSES- $10.5 MIL
    INSURANCE PREMIUMS- $20 MIL
    RISK CONTROL TECHNIQUES- $5 MIL
    1.2 MIL + 10.5 MIL + 20 MIL + 5 MIL = 36.7 MIL
  22. RISK MANAGEMENT PROGRAM
    A SYSTEM FOR PLANNING, ORGANIZING, LEADING, AND CONTROLLING THE RESOURCES AND ACTIVITIES THAT AN ORGANIZATION NEEDS TO PROTECT ITSELF FROM THE ADVERSE EFFECTS OF ACCIDENTAL LOSSES.
  23. PRE-LOSS GOALS
    RISK MANAGEMENT GOALS THAT SHOULD BE IN PLACE EVEN IF NO SIGNIFICANT LOSSES OCCUR.
  24. POST LOSS GOALS
    RISK MANAGEMENT GOALS THAT SHOULD BE IN PLACE IN THE EVENT OF A SIGNIFICANT LOSS.
  25. DESCRIBE FOUR PRE-LOSS GOALS OF RISK MANAGEMENT PROGRAMS.
    • ECONOMY OF OPERATIONS- OPERATE RM ECONOMICALLY AND EFFICIENTLY
    • TOLERABLE UNCERTAINTY- KEEP MANAGERS' UNCERTAINTY ABOUT ACCIDENTAL LOSSES TOLERABLE
    • LEGALITY- ENSURE LEGAL OBLIGATIONS ARE SATISFIES
    • SOCIAL RESPONSIBILITY- PROMOTE ETHICAL CONDUCT
  26. HOW MIGHT THE ECONOMY OF RISK MANAGEMENT PROGRAM BE MEASURED?
    BY COMPARING THE ORGANIZATION'S RISK MANAGEMENT COSTS WITH THOSE OF SIMILAR ORGANIZATIONS, THE RELATING THESE COST TO REVENUE.
  27. DESCRIBE SIX POST-LOSS GOALS OF A RISK MANAGEMENT PROGRAM.
    • SURVIVAL
    • CONTINUITY OF OPERATIONS
    • PROFITABILITY
    • EARNINGS STABILITY
    • SOCIAL RESPONSIBILITY
    • GROWTH
  28. ORGANIZATIONS RESOURCES
    THE ESSENTIAL GOALS OF A RM PROGRAM, SUCH AS SURVIVAL AND CONTINUITY OF OPERATIONS, GENERALLY REQUIRE SMALLER RESOURCE COMMITMENTS THAN DO THE DESIRABLE GOALS, SUCH AS SOCIAL RESPONSIBILITY AND GROWTH
  29. IDENTIFY THE STEPS AN ORGANIZATION SHOULD TAKE TO FORESTALL AN INTOLERABLE SHUTDOWN.
    • IDENTIFY ACTIVITES WHOSE INTERRUPTIONS CANNOT BE TOLERATED
    • IDENTIFY TYPES OF ACCIDENTS THAT COULD INTERRUPT SUCH ACTIVITIES
    • DETERMINE RESOURCES THAT ARE AVAILABLE TO COUNTER THE EFFECTS OF THESE ACCIDENTS
    • ENSURE THE AVAILABILITY OF STANDBY RESOURCES
  30. EXPLAIN WHY CONTINUITY OF OPERATIONS IS CONSIDERED AN ESSENTIAL GOAL FOR ALL PUBLIC ENTITES.
    ANY SUSTAINED INTERRUPTION IN SERVICES IS LIKELY TO HAVE SERIOUS CONSEQUENCES AND INTERFERE WITH THE WELL-BEING OF CITIZENS AND THE COMMUNITY.
  31. THE RM PROFESSIONAL OF THE BARTON CORPORATION IS PERIODICALLY CONSUMED WITH ANXIETY REGARDING THE EFFECTIVENESS OF THE RM PROGRAM. EXPLAIN WHICH OF THE PROGRAM'S PRE-LOSS GALS BEST ADDRESSES THIS RM PROFESSIONAL'S CONCERN.
    TOLERABLE UNCERTAINTY; THE RM PROGRAM SHOULD ANTICIPATE AND PLAN FOR ACCIDENTAL LOSSES SO THAT THEY WILL BE EFFECTIVELY TREATED, THEREBY REDUCING UNCERTAINTY ABOUT ACCIDENTAL LOSSES.
  32. GIVE AN EXAMPLE OF HOW EACH OF THE FOLLOWING RISK MANAGEMENT PROGRAM GOALS CONFLICT WITH THE PRE-LOSS GOAL OF ECONOMY OF OPERATIONS:
    A. TOLERABLE UNCERTAINTY
    B. LEGALITY
    C. SOCIAL RESPONSIBILITY
    • A. TOLERABLE UNCERTAINTY MIGHT CONFLICT BC OF THE COST OF RM EFFORTS
    • B. LEGALITY MIGHT CONFLICT BC SAFETY STANDARDS REQUIRE EXPENSES TO IMPLEMENT
    • C. SOCIAL RESPONSIBILITY MIGHT CONFLICT BC OBLIGATIONS (CHARITABLE CONTRIBUTIONS) RAISE COSTS
  33. DESCRIBE HOW A RISK MANAGEMENT DEPARTMENT CHANGES AS AN ORGANIZATION GROWS.
    SMALL ORGANIZATIONS OFTEN BEGIN WITH A RM DIRECTOR, A SAFETY AND LOSS PREVENTION MANAGER, AND A CLAIM MANAGER. AS MORE COMPLEX ASPECTS OF SAFETY EMERGE AND THE NUMBER OF CLAIMS INCREASE, DEPARTMENTAL EXPANSION OCCURS- ADDING RISK FINANCING PERSONNEL.
  34. IDENTIFY DEPARTMENTS THAT MIGHT PROVIDE INFORMATION SUPPORT TO THE RM PROFESSIONAL.
    • ACCOUNTING- PROVIDES HISTORICAL COST INFO 
    • INFO. SYSTEMS- TRACKS LOSS EXPOSURES
    • LEGAL- ADVISE ON LIABILITY CLAIM MANAGEMENT
    • HUMAN RESOURCES- IDENTIFY ESSENTIAL PERSONNEL
    • PRODUCTION- INFORMS ON ESSENTIAL PROCESSES
    • MARKETING- INFORMS ON PRODUCT
  35. IDENTIFY THE TYPES OF INFO THAT MIGHT BE COMMUNICATED INTO AND OUT OF AN ORGANIZATIONS RM DEPARTMENT.
    • LOSS EXPOSURE REPORTS
    • BULLETINS ON NEW LOSS EXPOSURES
    • BRIEFS FROM TRADE ASSOCIATIONS
    • REPORTS FROM GOV. AGENCIES
    • INFO FROM SEMINARS
    • DATA REPORTED TO TRADE ASSOCIATIONS OR GOV. AGENCIES
    • FACTS OR PROCEDURES SHARED AT MEETINGS
    • DIRECTION ON REPORTING
  36. IDENTIFY THE TEN WAYS THAT QUALITY OF INFORMATION CAN BE DESCRIBED.
    • ACCESSIBLE
    • COMPREHENSIVE
    • ACCURATE
    • APPROPRIATE
    • TIMELY
    • CLARITY
    • FLEXIBLE
    • VERIFIABLE
    • FREE FROM BIAS
    • QUANTIFIABLE
  37. BABY CRIB MANUFACTURER IS CONCERNED THAT ITS RM DEPARTMENT IS NOT GETTING ALL THE INFO IT NEEDS TO MAKE SOUND DECISIONS. DESCRIBE THE INFO THE RM PROFESSIONALS MAY EXPECT FROM THE FOLLOWING DEPARTMENTS REGARDING RM ISSUES:
    A. LEGAL
    B. MARKETING
    C. ACCOUNT
    • A. US CONSUMER PRODUCT SAFETY COMMISSION GUIDELINES, CASE LAW, PAST COURT CASES INVOLVING BABY CRIBS
    • B. CONSUMER REACTION TO CRIB SAFETY FEATURES
    • C. VENDOR OF MODELS SOLD AND WHERE EACH MODEL IS BEING SOLD
  38. IDENTIFY THE FOUR GENERIC CATEGORIES OF RM PROFESSIONALS' DUTIES THAT ARE USUALLY NOT DELEGATED TO OTHERS.
    • RISK MANAGEMENT PROGRAM
    • RISK ASSESSMENT
    • RISK CONTROL
    • RISK FINANCING
  39. IDENTIFY THE RESPONSIBILITIES OF RM PROFESSIONALS IN AN ORGANIZATION'S RM PROGRAM.
    • GUIDE SENIOR MANAGEMENT IN ESTABLISHING THE RM PROGRAM
    • PLAN, ORGANIZE, LEAD, AND CONTROL THE RESOURCES AND ACTIVITIES OF THE RM DEPT.
    • ESTABLISH RESPONSIBILITY AND COMMUNICATION REGARDING RM MATTERS
    • DEFIN THE RESPONSIBILITIES AND MOTIVE.
  40. IDENTIFY THE RESPONSIBILITIES OF THE REISK MANAGEMENT PROFESSIONAL IN AN ORGANIZATIONS RISK CONTROL EFFORTS.
    • IDENTIFYING THE BENEFITS AND MEASURING AND CONTROLLING THE COSTS OF ALTERNATIVE RISK CONTROL TECHNIQUES.
    • RECOGNIZING HAZARDS AND IMPLEMENT APPROPRIATE RISK CONTROL TECHNIQUES
    • ADVISE SENIOR MGT HOW TO EMPHASIZE SAFETY
    • ADVISE HOW TO PREVENT ACCIDENTS
  41. IDENTIFY THE TASKS THE RISK MANAGEMENT PROFESSIONAL MUST COMPLETE IN AN ORGANIZATIONS RISK FINANCING PROGRAM.
    • WORK W FINANCIAL AND SENIOR EXECUTIVES TO DETERMINE THE EXTENT TO WHICH THE ORGANIZATION SHOULD RETAIN LOSSES AND TRANSFER POTENTIAL LOSSES
    • DECIDE WHICH RETENTION AND TRANSFER TECHNIQUES SHOULD BE USED TO FINANCE LOSSES FROM SPECIFIC LOSS EXPOSURE.
  42. THROUGH A LEVERAGED BUYOUT, REGIONAL DEPARTMENT STORE HAS PURCHASED NATION DEPARTMENT STORE. EXPLAIN HOW THE RISK MANAGEMENT DEPARTMENT OF REGIONAL DEPARTMENT STORE MAY NEED TO BE RESTRUCTURED AS A CONSEQUENCE OF THIS ORGANIZATIONAL CHANGE.
    AS A CONSEQUENCE OF ITS ACQUISITION THE RM DEPARTMENT WILL BE EXPANDED. THE ROLES OF INSURANCE MANAGER, SAFETY AND LOSS PREVENTION MANGER, CLAIM MANAGER, AND SECURITY MANAGER WILL BE GREATER AND WILL HAVE PERSONNEL REPORTING TO THEM.
  43. RISK MANAGEMENT POLICY STATEMENT
    A TOOL FOR COMMUNICATING THE GOALS OF THE RISK MANAGEMENT PROGRAM AND THE ROLES THAT PEOPLE THROUGHOUT THE ORGANIZATION HAVE IN ACHIEVING THE ORGANIZATION'S RISK MANAGEMENT GOALS.
  44. WHAT DOES A RISK MANAGEMENT POLICY STATEMENT COMMUNICATE?
    A RM POLICY STATEMENT COMMUNICATES THE GOALS OF THE RM PROGRAM AND THE ROLES THAT PEOPLE THROUGHOUT THE ORGANIZATION HAVE IN ACHIEVING THE ORGANIZATIONS RM GOALS
  45. DESCRIBE THE PURPOSE OF A WRITTEN RISK MANAGEMENT POLICY STATEMENT.
    • ESTABLISH GOALS OF THE ORGANIZATIONS RM FUNCTION
    • DEFINE RESPONSIBILITIES OF THE RM PERSONNEL
    • COORDINATE TX OF LOSS EXPOSURES
    • ESTABLISH AND IMPROVE COMMUNICATION CHANNELS
    • PROVIDE PROGRAM CONTINUITY AND FACILITATE TRANSITION DURING PERSONNEL CHANGE
  46. IDENTIFY THE TYPICAL CONTENT OF A WRITTEN RISK MANAGEMENT POLICY STATEMENT.
    • GENERAL DESCRIPTION OF RISK MANAGEMENT AND ITS IMPORTANCE TO THE ORGANIZATION
    • RISK MANAGEMENT DEPARTMENT'S INTERNAL STRUCTURE
    • SENIOR MANAGEMENT'S RISK MANAGEMENT GOALS
    • DECISION RULES FOR SELECTING RISK MANAGEMENT TECHNIQUES
  47. RESULTS STANDARDS
    STANDARDS THAT FOCUS ON ACHIEVEMENTS REGARDLESS OF THE EFFORTS THEY REQUIRE
  48. ACTIVITY STANDARDS
    STANDARDS THAT FOCUS ON ACTIVITY UNDERTAKEN TO ACHIEVE A PARTICULAR RESULT REGARDLESS OF THE SUCCESS OF THAT ACTIVITY
  49. IDENTIFY HOW RESULT STANDARDS CAN BE MEASURED.
    CAN BE MEASURED USING DOLLARS, PERCENTAGES, RATIONS, OR NUMBERS OF LOSSES OR CLAIMS. THESE STANDARDS FOCUS ON ACHIEVEMENTS REGARDLESS OF THE EFFORTS REQUIRED.
  50. DESCRIBE THREE RESULTS THAT MAY OCCUR WHEN ACTUAL PERFORMANCE IS COMPARED WITH PERFORMANCE STANDARDS.
    • MEETS ESTABLISHED STANDARDS
    • FALLS BELOW ESTABLISHED STANDARDS
    • CORRECTIVE ACTING IS NEEDED; PERFORMANCE IS RAISED OR MORE REALISTIC STANDARD IS SET
    • EXCEEDS ESTABLISHED STANDARDS
    • INDICATES EXCEPTIONAL PERFORMANCE OR THAT STANDARDS ARE TOO LOW
  51. WHAT CONCLUSIONS MIGHT BE DRAWN WHEN PERFORMANCE SUBSTANTIALLY EXCEEDS A STANDARD?
    THE STANDARD SET WAS TOO LOW, THE STANDARD WAS INCOMPLETE OR THAT HTE STANDARD IS APPROPRIATE AND THE PERFORMANCE IS EXCEPTIONAL.
  52. SUGGEST A STANDARD THAT A RM PROFESSIONAL MIGHT USE TO GAGE PERFORMANCE: A. SHIPMENTS TO CUSTOMERS ARE DAMAGED IN TRANSIT
    B. CUSTOMERS ARE INJURED WHEN PREMISES ARE WET
    C. VEHICLES ARE DAMAGED IN BACKING INCIDENT
    D. EE'S ARE INJURED WHILE CUTTING METAL
    • A. LESS THAN 5% OF ALL SHIPMENTS ARE DAMAGED IN TRANSIT
    • B. NO CUSTOMER INJURY CLAIMS WHEN PREMISES SURFACES ARE WET
    • C. LESS THAN 5% OR VEHICLE ACCIDENTS RESULT FROM BACKING UP 
    • D. NO EMPLOYEE INJURIES WHILE CUTTING SHEET METAL.
  53. DESCRIBE WHAT THE RISK MANAGEMENT PROCESS DOES FOR AN ORGANIZATION.
    THE RM PROCESS PROVIDES AN METHODOLOGY FOR ASSESSING AND TREATING ACCIDENTAL LOSS EXPOSURES TO ENABLE AN ORGANIZATION TO MEET ITS PRE-LOSS AND POST-LOSS GOALS.

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