Risk Management Flashcards
7 cards from real ESB practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management flashcards as text
Which of the following best describes 'risk management' in the context of a small business?
Answer: Identifying, assessing, and prioritizing potential threats and taking actions to minimize their impact
Risk management involves identifying, assessing, and prioritizing risks, then implementing strategies to minimize or control their impact on the business.
A small business owner purchases liability insurance to protect against lawsuits from customers. This is an example of which risk management strategy?
Answer: Risk transfer
Purchasing insurance is a classic example of risk transfer, where the financial burden of a potential loss is shifted to an insurance company.
What is 'pure risk' in a small business context?
Answer: A risk that can only result in loss or no loss, with no possibility of gain
Pure risk only has two outcomes — loss or no loss — with no possibility of financial gain, such as fire damage or theft.
An entrepreneur decides not to enter a highly litigious market segment to avoid potential lawsuits. This is an example of which risk strategy?
Answer: Risk avoidance
Risk avoidance means choosing not to participate in an activity that carries significant risk, eliminating the exposure entirely.
Which document helps a small business identify critical operations and plan for continued functioning during a disaster?
Answer: Business continuity plan
A business continuity plan outlines how critical operations will continue during and after a disruptive event, minimizing downtime.
A startup keeps a cash reserve equal to three months of operating expenses to handle unexpected downturns. This illustrates which risk management approach?
Answer: Risk retention
Risk retention means the business accepts and self-funds a potential loss, often by setting aside reserves to cover it.
Which type of business risk arises from changes in laws, regulations, or government policies that affect operations?
Answer: Regulatory/compliance risk
Regulatory or compliance risk is the threat of loss resulting from failure to comply with laws, regulations, or industry standards.