BFF5902

Introduction to risk management – Semester 2, 2024

1. Which of the following statements best describes the ISO 31000:2018 definition of risk? Select one:

A. Risk is the effect of uncertain organisational objectives.

B. Risk is an uncertain consequence of an event, or an activity, on an individual's well-being.

C. None of the others.

D. Risk is the probability of adverse events happening.

2. Which of the following terms best describes the tendency for participants in a workshop to be biased by the first piece of information received.

Select one:

A. Availability bias.

B. Framing effect.

C. Anchoring bias.

D. Rule of thumb.

3. A company is fined for causing physical damage that is in breach of environmental laws and regulations. Using the impact method of classifying risks, which of the following categories best describes this risk?

A. People

B. Operational

C. Strategic

D. Financial

4. Which one of the following statements best describes the role of a risk owner in an organisation?

A. A manager who is responsible for the operations of the organisation.

B. The Chief Risk Officer is ultimately accountable for managing each risk and is therefore the risk owner.

C. External audit because of their skills in auditing and independent opinion.

D. A second-line risk manager who provides oversight because of their specialist knowledge and skills in risk management.

5. Insurance companies are generally unwilling to insure the financial success of a small businesses because:

A. All of the others.

B. The risk is particular to the individual.

C. The risk involves moral hazard.

D. The risk is pure and particular.

6. The ISO 31000:2018 principle 'inclusive' is BEST described by which one of the following statements?

A. Human behaviour and culture significantly influence all aspects of risk management at level and stage.

B. Risk is considered in all aspects of an organisation's activities.

C. Risk management explicitly takes account of limitations and uncertainties in information and expectations.

D. Appropriate and timely involvement of stakeholders.

7. A company that makes and sells fast-fashion is experiencing falling sales as consumers shift their preference to buying better quality and longer lasting clothes. Using the root-cause method and risk taxonomy, which category of risk best describes this situation?

A. A strategic risk.

B. A financial market risk.

C. A supply chain risk.

D. A compliance, conduct, and reputation risk.

8. Staff who take excessive risks are penalised by being fined, instead of having their future bonuses reduced. Which biases and behavioural theories are management using to modify staff behaviour?

A. The above average effect and rules of thumb.

B. Excessive optimism bias and habituated action theory.

C. Loss aversion and the framing effect.

D. Risk-aversion and confirmation bias.

9. Risk Assessment is best described as the process of:

A. Finding, measuring and prioritising risks for treatment.

B. Finding , analysing and treating risks.

C. Finding , analysing and rating risks.

D. Finding , categorising and measuring risks.

10. Which of the following statements is TRUE?

A consequence scale comprises:

A. descriptions of consequences organised into categories of similar impacts, in which the each rating describes an equivalent impact to the organisation.

B. a rating of risk that combines estimates of likelihood and consequence.

C. a rating scale that contains descriptions and measures of impacts to an organisation should it achieve its objectives.

D. a rating system that scales from the least likely to the most likely scenario affecting an organisation.

11. Which of the following statements is FALSE?

A. risk profile defines the maximum level of risk, above which an organisation will fail.

B. risk appetite is the maximum level of risk tolerance.

C. Social Licence is lost when risk capacity is reached.

D. the Board may set a minimum desired level of risk in the Risk Appetite Statement.

12. A bank uses a statistical model to predict the likelihood that a customer will repay a loan. Before finalising the estimate, it is reviewed by a human.

Which of the following statements best describes this situation?

A. This is qualitative risk analysis because a human makes the final decision.

B. This is a qualitative risk measurement method that is relatively quick and easy.

C. This is a hybrid risk measurement system that could reduce model error by including additional information.

D. This is quantitative risk analysis because a model is used.

13. Which of the following statements best describes a Stress Test?

A. A best case description of hypothetical future economic and business conditions.

B. A description of economic and business conditions that are expected to evolve in the next 12 months.

C. A description of hypothetical adverse economic and business descriptions, and their impacts on the organisation.

D. Simulation of many thousands of randomly drawn inputs into a model of the organisation's cash flows.