Risk Assessment & Mitigation Flashcards
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Read the first 7 Risk Assessment & Mitigation flashcards as text
In quantitative risk analysis, 'Expected Monetary Value' (EMV) is calculated as:
Answer: Probability of occurrence multiplied by the financial impact
EMV = Probability × Impact, providing a dollar-weighted average outcome used to compare and prioritize risks or decision options.
Which risk monitoring technique involves setting predefined thresholds that trigger escalation when breached?
Answer: Risk threshold monitoring with KRIs
KRI thresholds define acceptable risk levels; when a metric crosses the threshold, it automatically signals that management action is required.
An operations manager is deciding between two suppliers. Supplier A is cheaper but has a 20% chance of causing a $500K disruption. Supplier B costs $80K more but eliminates the disruption risk. Based on EMV, which is preferable?
Answer: Supplier B, because its EMV savings ($100K) exceed the $80K premium
Supplier A's EMV cost = 20% × $500K = $100K expected loss, which exceeds the $80K premium for Supplier B, making B the rational choice.
Which phase of the risk management process involves determining which risks need responses and in what priority order?
Answer: Risk analysis and evaluation
Risk analysis and evaluation assesses the significance of each risk and ranks them so that limited mitigation resources are directed at the highest priorities.
A 'risk owner' in an operational risk framework is responsible for:
Answer: Monitoring, managing, and reporting on a specific assigned risk
A risk owner is the individual accountable for ensuring that a particular risk is properly monitored, controlled, and reported throughout its lifecycle.
Scenario planning in risk management is MOST valuable for:
Answer: Exploring how multiple uncertainties might combine to create strategic threats
Scenario planning examines plausible combinations of trends and uncertainties to help organizations prepare strategies for diverse future states.
Which of the following represents a 'proactive' risk mitigation approach rather than a 'reactive' one?
Answer: Replacing worn equipment before it fails based on maintenance schedules
Proactive mitigation prevents or reduces risk before it materializes; preventive maintenance addresses risk before failure occurs rather than responding after.