Elements of Risk Management

Define 'Accident' in the context of risk management.

• An unexpected event causing harm or damage

• A planned event with known outcomes

• A routine event with no consequences

• A predictable event with no impact

Answer explanation

In risk management, an 'Accident' is defined as an unexpected event causing harm or damage. This highlights the unpredictable nature of accidents, distinguishing them from planned or routine events.

What does 'Exposure' mean in risk management terms?

• The potential for loss or damage

• A type of insurance policy

• A financial investment strategy

• A method of risk assessment

Answer explanation

In risk management, 'Exposure' refers to the potential for loss or damage that an entity may face. This makes the first choice the correct answer, as it directly relates to the risks involved.

Frequency in risk management refers to:

• The likelihood of a risk occurring within a specific time period.

• The impact of a risk when it occurs.

• The process of identifying risks.

• The strategy to mitigate risks.

Answer explanation

Frequency in risk management specifically refers to the likelihood of a risk occurring within a specific time period, making it the correct choice. The other options relate to impact, identification, and mitigation.

What is a 'Hazard' in the context of risk management?

• A potential source of harm or adverse health effect on a person or persons

• A strategy to mitigate risks

• A financial risk assessment tool

• A type of insurance policy

Answer explanation

In risk management, a 'Hazard' refers to a potential source of harm or adverse health effects on individuals. This definition highlights the importance of identifying hazards to manage risks effectively.

Define 'Incident' in risk management.

• An unexpected event that may cause harm or damage

• A planned event with known outcomes

• A routine operation with no risk

• A financial transaction

Answer explanation

In risk management, an 'Incident' refers to an unexpected event that may cause harm or damage, making the first choice the correct definition. The other options describe planned or routine activities, which do not fit the definition.

What is meant by 'Peril' in risk management?

• A potential cause of loss or damage

• A type of insurance policy

• A method of risk assessment

• A financial investment strategy

Answer explanation

In risk management, 'Peril' refers to a potential cause of loss or damage, such as fire, theft, or natural disasters. This definition aligns with the correct answer choice.

Explain 'Pure risk' in the context of risk management.

• Pure risk refers to situations that can only result in a loss or no change, with no opportunity for financial gain.

• Pure risk involves speculative opportunities that can lead to either a gain or a loss.

• Pure risk is a type of risk that is entirely avoidable through proper planning.

• Pure risk is associated with investment decisions that can lead to profit.

Answer explanation

Pure risk is defined as situations that can only lead to a loss or no change, meaning there is no potential for financial gain. This distinguishes it from speculative risks, which can result in both gains and losses.

What does 'Risk (as it relates to business)' mean?

• The potential for loss or failure in business operations

• A guaranteed profit in business

• The certainty of business success

• An irrelevant factor in business

Answer explanation

In business, 'Risk' refers to the potential for loss or failure in operations. It highlights uncertainties that can impact success, making the correct choice the first option, as the others imply certainty or irrelevance.

Define 'Risk appetite' as a factor in decision-making.

• The level of risk an organization is willing to accept in pursuit of its objectives.

• The process of identifying and assessing risks.

• The likelihood of a risk occurring.

• The impact of a risk on an organization.

Answer explanation

'Risk appetite' refers to the level of risk an organization is willing to accept in pursuit of its objectives, making it crucial for informed decision-making. The other options describe different aspects of risk management.

What is 'Risk management'?

• A process of identifying, assessing, and controlling threats to an organization's capital and earnings.

• A method of increasing risks to maximize profits.

• A strategy to ignore potential risks in business operations.

• A technique to ensure all risks are unavoidable.

Answer explanation

Risk management is correctly defined as a process of identifying, assessing, and controlling threats to an organization's capital and earnings, ensuring that potential risks are effectively managed.