In the context of risk, the chance of being injured while driving to and from work, loading a truck at work, moving furniture at home, or falling in an
... [Show More] icy parking lot at the mall are all examples of
A. Possibilities.
B. Uncertainties.
C. Probabilities.
D. Losses. - Correct Answer-A. Possibilities.
The statement, "There is a five percent chance that John will be injured in an automobile accident while driving to work tomorrow," is an example of
A. Quantifying risk.
B. Verifying risk.
C. Quantifying loss exposures.
D. Identifying hazards. - Correct Answer-A. Quantifying risk.
Which one of the following is measurable and quantifies risk?
A. Probability
B. Possibility
C. Uncertainty
D. Feasibility - Correct Answer-A. Probability
One of the elements of risk is uncertainty. Which one of the following best describes the uncertainty that risk involves?
A. Uncertainty as to how to manage potential losses
B. Uncertainty as to whether a negative outcome is possible
C. Uncertainty as to the type and timing of an outcome
D. Uncertainty as to whether insurance is available - Correct Answer-C. Uncertainty as to the type and timing of an outcome
Hardware Store has been able to control its prices and inventory since it has no competitors. A new highway currently being constructed is going to allow increased competition for Hardware Store. According to the quadrants of risk, this risk of increased competition falls into the category of
A. Strategic risk.
B. Hazard risk.
C. Operational risk.
D. Financial risk. - Correct Answer-A. Strategic risk.
Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss would be classified as a(n)
A. Strategic risk.
B. Financial risk.
C. Operational risk.
D. Hazard risk. - Correct Answer-A. Strategic risk.
George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options?
A. Donating his inheritance to charity is a pure risk; there is no uncertainty that the money will be gone and George will have no chance of profit.
B. Buying a boat is a nondiversifiable risk because George can only afford to purchase a single yacht.
C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down.
D. Purchasing T-bills is a pure risk because the interest rate payable is known, and the chance of loss is minimal. - Correct Answer-C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down.
Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk?
A. Acquiring a new television
B. Investing in shares of stock
C. Buying a new personal vehicle
D. Purchasing an insurance policy - Correct Answer-B. Investing in shares of stock
Which one of the following statements is true regarding enterprise risk management (ERM)?
A. ERM is concerned with an organization's pure risk, primarily hazard risk.
B. The ERM framework encompasses all stakeholders in the organization.
C. In ERM, the risk management function is the responsibility of the safety manager.
D. ERM requires less communication than traditional risk management. - Correct Answer-B. The ERM framework encompasses all stakeholders in the organization.
A risk management plan that considers all of the risks that an organization faces, including operational, financial, and strategic risks, is called
A. An enterprise risk management plan.
B. An open-perils risk management plan.
C. A protected cell risk management plan.
D. A hazard risk management plan. - Correct Answer-A. An enterprise risk management plan.
The single largest impediment to successful implementation of an enterprise risk management (ERM) program is
Select one:
A. Traditional organizational culture with entrenched risk silos.
B. Lack of required skills to effectively implement an ERM program.
C. Lack of vision by the management team that leads to under-performance of the ERM plan and early termination.
D. Opposition from stakeholders—employees, stockholders, customers, and suppliers. - Correct Answer-A. Traditional organizational culture with entrenched risk silos.
The consensus process by which the veracity of data is confirmed and verified is known as
Select one:
A. Telematics.
B. Machine learning.
C. The Internet of Things.
D. Mining. - Correct Answer-D. Mining.
Which one of the following is a virtual ledger of data that has been verified, timestamped, encrypted, and protected against tampering?
Select one:
A. Artificial intelligence
B. The Internet of Things
C. Closed-loop system
D. Blockchain - Correct Answer-D. Blockchain
Which one of the following is the network through which sensors and other smart products capture and transmit data?
Select one:
A. Blockchain
B. Cloud
C. Artificial intelligence
D. Internet of Things - Correct Answer-D. Internet of Things
Insurers and risk managers can use the large volumes of data collected and organized through telematics to help improve results for which one of the following types of insurance?
Select one:
A. Health
B. Workers compensation
C. Automobile
D. Property - Correct Answer-C. Automobile
Organizations find it difficult to establish a benchmark against which the performance of their risk management program can be assessed because it is difficult to assign a specific value to the
Select one:
A. Cost of implementing and administering risk management.
B. Cost of measures to prevent or reduce the size of potential losses.
C. Cost of residual uncertainty.
D. Cost of losses not reimbursed by insurance. - Correct Answer-C. Cost of residual uncertainty.
The two benefits of risk management affecting individuals, organizations, and society are: it preserves financial resources by reducing expected losses and it
Select one:
A. Reduces the residual uncertainty associated with risk.
B. Increases productivity within the economy and improves overall standard of living.
C. Increases the attractiveness to investors.
D. Improves the allocation of productive resources. - Correct Answer-A. Reduces the residual uncertainty associated with risk.
Which one of the following statements is true regarding risk management efforts on the part of individuals, organizations, and society in general?
Select one:
A. Organizations tend to exhibit a greater degree of risk aversion than do individuals.
B. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general.
C. Risk management makes those who own or run an organization more willing to undertake risky activities.
D. Risk management tends to increase the deterrence effect of risk in organizations. - Correct Answer-C. Risk management makes those who own or run an organization more willing to undertake risky activities.
Risk management programs should
Select one:
A. Operate economically and efficiently.
B. Incur substantial costs for slight benefits.
C. Be an autonomous part of the organization.
D. Not use benchmarking to compare costs. - Correct Answer-A. Operate economically and efficiently.
Which of the following risk management program goals is an essential goal for all public entities?
Select one:
A. Growth
B. Continuity of operations
C. Earning stability
D. Survival - Correct Answer-B. Continuity of operations
Aligning risks with the organization's risk appetite defines
Select one:
A. Compliance.
B. Tolerable uncertainty.
C. Social responsibility.
D. Value at risk. - Correct Answer-B. Tolerable uncertainty.
The second step in the risk management process is analyzing loss exposures. Which one of the following is true regarding this step?
Select one:
A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step.
B. Loss exposures that could interfere with the achievement of the organization's goals are identified in this step.
C. A weakness of loss exposure analysis is that it is useful only for those types of losses that an organization has suffered in the past.
D. A major strength of loss exposure analysis is that the process is generally inexpensive. - Correct Answer-A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step.
Which one of the following is the first step in the risk management process?
Select one:
A. Examine the feasibility of risk management techniques
B. Monitor results and revise the risk management program
C. Identify loss exposures
D. Analyze loss exposures - Correct Answer-C. Identify loss exposures
A risk management program must be monitored and periodically revised, and that revision involves four steps. Which one of the following is one of those four steps?
Select one:
A. Establish results-based rather than activity-based standards of acceptable performance.
B. Compare actual results with the established performance standards.
C. Reduce any performance standards that have not been achieved by the actual results.
D. Return to the first step in the risk management process to identify new loss exposures. - Correct Answer-B. Compare actual results with the established performance standards.
After identifying and analyzing loss exposures and evaluating and selecting the appropriate risk management techniques, the next step in the risk management process is to
Select one:
A. Monitor the results.
B. Revise the risk management program.
C. Implement the selected techniques.
D. Decide on risk financing techniques. - Correct Answer-C. Implement the selected techniques.
Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk?
Select one:
A. Uncertainty of outcome
B. Likelihood of injury or damage to property
C. Probability of financial loss
D. Opportunity for profit - Correct Answer-A. Uncertainty of outcome
Probabilities are stated as a decimal figure, a percentage, or a
Select one:
A. Stated constant.
B. Fraction.
C. Dollar amount.
D. Credibility factor. - Correct Answer-B. Fraction.
To understand risk, one needs to know the probability of an outcome or event occurring. Which one of the following statements is correct with respect to probability?
Select one:
A. It is typically expressed verbally rather than numerically.
B. It can be used to decide which activities to undertake.
C. It verifies that risk is present, but does not quantify it.
D. It identifies what can be lost when a negative outcome occurs. - Correct Answer-B. It can be used to decide which activities to undertake.
Risk involves the possibility of a negative outcome. Possibility means
Select one:
A. The likelihood of an event occurring.
B. That an outcome is unavoidable.
C. An identified and predictable outcome.
D. That an outcome may or may not occur. - Correct Answer-D. That an outcome may or may not occur.
Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is a
Select one:
A. Strategic risk.
B. Subjective risk.
C. Market risk.
D. Speculative risk. - Correct Answer-B. Subjective risk.
The focus of risk quadrants is different from the focus of risk classifications. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on
Select one:
A. Subjective and objective risks.
B. The source of risk and who has traditionally managed it.
C. Pure and speculative risks.
D. The determination of whether the risk is diversifiable. - Correct Answer-B. The source of risk and who has traditionally managed it.
One approach to categorizing risks involves dividing risks into risk quadrants. The risks categorized as hazard risks are
Select one:
A. Traditionally handled by the chief financial officer.
B. Speculative risks that fall outside the operational risk category.
C. Fundamental to an organization's existence and business plans.
D. Traditionally managed by risk management professionals. - Correct Answer-D. Traditionally managed by risk management professionals.
Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification?
Select one:
A. Private insurance tends to concentrate on nondiversifiable risks; government insurance is often suitable for diversifiable risks.
B. The distinction between diversifiable and nondiversifiable risks is clear; risks cannot fall under both classifications simultaneously.
C. Inflation, unemployment, and natural disasters, such as hurricanes, are examples of diversifiable risk.
D. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk. - Correct Answer-D. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk.
Conrad Sales Company's vehicles are equipped with a device that allows them to locate each vehicle for tracking purposes. If a vehicle is stolen, the tracking devices can be used to recover the vehicle more quickly. Conrad Sales Company is using the risk management technique of
Select one:
A. Transfer.
B. Duplication.
C. Loss reduction.
D. Loss prevention. - Correct Answer-C. Loss reduction.
Three main theoretical concepts explain why ERM works. Which one of the following correctly lists those three concepts?
Select one:
A. Objective setting, risk response, and monitoring
B. Internal environment, event identification, and control activities
C. Interdependency, correlation, and portfolio theory
D. Risk quantification, silo theory, and statistical correlation - Correct Answer-C. Interdependency, correlation, and portfolio theory
Which one of the following is usually the single largest impediment to successful implementation of enterprise risk management (ERM)?
Select one:
A. The traditional organizational culture
B. The financial expense
C. The legal and regulatory requirements
D. The risk management information system - Correct Answer-A. The traditional organizational culture
The use of data gleaned from sensors to react immediately to hazardous situations is known as
Select one:
A. Forward-thinking risk management.
B. Root cause risk management.
C. Real-time risk management.
D. Looking-backward risk management. - Correct Answer-C. Real-time risk management.
Which one of the following products has led to significant improvements in supply chain management by allowing for the immediate identification of discrepancies and interruptions as well as timely actions that can prevent or reduce losses?
Select one:
A. Wearable exoskeleton
B. Accelerometer
C. Closed-loop system
D. Blockchain - Correct Answer-C. Closed-loop system
Which one of the following is the network through which sensors and other smart products capture and transmit data?
Select one:
A. Artificial intelligence
B. Internet of Things
C. Blockchain
D. Cloud - Correct Answer-B. Internet of Things
The consensus process by which the veracity of data is confirmed and verified is known as
Select one:
A. The Internet of Things.
B. Mining.
C. Telematics.
D. Machine learning. - Correct Answer-B. Mining.
Which one of the following costs is part of the overall financial consequences of risk?
Select one:
A. The cost of benchmarking surveys
B. The cost of purchasing an asset
C. The cost of the value lost due to events that caused a loss
D. The cost of losses reimbursed by insurance - Correct Answer-C. The cost of the value lost due to events that caused a loss
As part of its risk management program, a vending company installed a new top of the line security system with an expectation of fewer thefts and
Select one:
A. Higher expected losses.
B. Less residual uncertainty.
C. Increased anxiety.
D. Increased residual uncertainty. - Correct Answer-B. Less residual uncertainty.
Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility?
New building cost
$60.0 million
Safety system upgrades
$6.0 million Insurance premiums
$1.5 million Retained losses
$3.0 million
Risk management department budget at the site
$1.0 million
Select one:
A. $7.0 million
B. $10.0 million
C. $11.5 million
D. $71.5 million - Correct Answer-C. $11.5 million (The cost of risk of opening the new facility is $11.5 million, calculated by adding $6 million of safety system upgrades + $1.5 million of insurance premiums + $3 million of retained losses + $1 million of risk management budget at the site)
Sean recently started a small consulting practice. Sean is the only employee of the business and the sole generator of revenue. Sean is very concerned that in the event that he becomes disabled due to an accident or disease there will be no revenue coming into the business. Which one of the following goals best identify Sean's concerns?
Select one:
A. Social responsibility and earnings stability
B. Legality and profitability
C. Tolerable uncertainty and earnings stability
D. Economy of risk management operations - Correct Answer-C. Tolerable uncertainty and earnings stability
Which one of the following is essential to an effective risk management program?
Select one:
A. Increased cost of risk
B. Reduced waste of resources
C. Support from the community as a whole
D. Support of the organization's senior management - Correct Answer-D. Support of the organization's senior management
An organization must meet the standard of care that it owes to others in order to ensure that
Select one:
A. Post-loss goals are in place.
B. Legal obligations are satisfied.
C. Operations are efficient.
D. Contracts are not breached. - Correct Answer-B. Legal obligations are satisfied.
Two steps of the risk management process, when combined, constitute the process of assessing loss exposures. For this reason, they are probably the two most important steps in the process. These two steps are identifying loss exposures and
Select one:
A. Selecting the appropriate risk management techniques.
B. Implementing selected risk management techniques.
C. Examining feasibility of risk management techniques.
D. Analyzing loss exposures. - Correct Answer-D. Analyzing loss exposures.
The owner of Harry's Hardware Store is interested in creating a risk management process to help mitigate risk. Harry has already developed much of the process and is currently working to purchase loss reduction devices and contract for loss prevention services. This is an example of which one of the following steps in the risk management process?
Select one:
A. Analyze loss exposures
B. Implement the selected risk management techniques
C. Select the appropriate risk management techniques
D. Identify loss exposures - Correct Answer-B. Implement the selected risk management techniques
Which one of the following steps required to monitor and revise the risk management program refers to a proper standard that includes specifications for how results or performance will be measured, such as target activity levels or results?
Select one:
A. Correct substandard performance or revise standards that prove to be unrealistic
B. Establish standards of acceptable performance
C. Compare actual results with standards
D. Evaluate standards that have been substantially exceeded - Correct Answer-C. Compare actual results with standards
Which one of the following is true regarding risk control techniques?
Select one:
A. They are usually used in isolation.
B. They minimize the frequency or severity of losses or make losses more predictable.
C. They generate funds to finance losses that cannot be prevented.
D. They ensure that the estimated frequency and severity of loss remain constant. - Correct Answer-B. They minimize the frequency or severity of losses or make losses more predictable.
Which one of the following is correct with respect to the potential financial consequences of a property loss?
Select one:
A. When property is used to secure a loan, only the lender suffers financial consequences if that property is destroyed.
B. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others.
C. Consumers or resellers of property do not suffer a financial loss unless they actually own property when it is damaged.
D. When a mortgaged property is destroyed, the mortgagor's loss is limited to the outstanding balance of the loan. - Correct Answer-B. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others.
A secured lender (secured creditor)
Select one:
A. Acquires conditional rights to property, such as the right to repossess it if loan payments are not made.
B. Holds property of others to perform work on it.
C. Has a direct ownership interest in the property.
D. Purchases insurance to cover the borrower's loss of use of the property should the borrower default on the loan. - Correct Answer-A. Acquires conditional rights to property, such as the right to repossess it if loan payments are not made.
For insurance purposes, money and securities are separate from other types of contents because
Select one:
A. The insurance industry considers them uninsurable.
B. They are not susceptible to the same perils as other property.
C. The burden of proof for a loss is on the insurer.
D. They are highly susceptible to loss by theft. - Correct Answer-D. They are highly susceptible to loss by theft.
When property is used to secure a loan, which of the following is exposed to loss?
Select one:
A. Neither the property owner nor the secured lender
B. The property owner only
C. The property owner and the secured lender
D. The secured lender only - Correct Answer-C. The property owner and the secured lender
Angelina borrows money from the bank to purchase a house. The house serves as security for the loan. In this transaction, Angelina is the
Select one:
A. Mortgagor.
B. Secured creditor.
C. Mortgagee.
D. Bailor. - Correct Answer-A. Mortgagor.
Because attorneys, physicians, architects, and engineers are considered to be experts in their fields and are expected to perform accordingly, what liability exposure do they face if a client is injured when such an expert fails to exercise the appropriate standard of care?
Select one:
A. Completed operations
B. Business operations
C. Professional liability
D. Products - Correct Answer-C. Professional liability
A completed operations liability loss exposure differs from a products liability loss exposure in that the completed operations liability loss exposure
Select one:
A. Is based solely on strict liability rather than negligence or strict liability.
B. Arises out of the entity's completed work, including defective parts or materials furnished with the work.
C. Arises out of the entity's defective product, whether or not it has been installed as part of the finished work.
D. Is based solely on negligence and breach of warranty rather than strict liability. - Correct Answer-B. Arises out of the entity's completed work, including defective parts or materials furnished with the work.
Telephone Company installs fiber-optic cable using a trenching machine that digs a trench, buries the cable, fills in the trench, and reseeds, all in one pass. The trenching machine can install cable in a fifty-home neighborhood in one day. Soon [Show Less]