ARM 401 EXAM PRACTICE EXAM
2025-2026 WITH 100% CORRECT
ANSWERS
SoCal Movie Company produces movies at a studio in Southern California. The risk manager
decided to identify the range of potential consequences associated with various risks that the
company faces. For example, if a severe earthquake occurred while the company was filming a
movie, there could be deaths and injuries, destruction of movie sets, delays in production, costs
associated with filming at an alternative location, and loss of reputation and good will. The type
of analysis performed by the risk manager is called
A. SWOT analysis.
B. Scenario analysis.
C. Sensitivity analysis.
D. HAZOP analysis. - ANSWER --B
Insurance Company (IC) sells its coverages through independent insurance agents. Independent
agents represent several insurance companies. Tom, the president of IC, has learned that the
independent agent who is the highest producer for IC is considering selling his agency. IC is
considering acquiring the agency since Tom is concerned that if the agency is sold, IC may lose a
substantial amount of business. Tom asked IC's risk manager to analyze the prospective
purchase. The analysis revealed that the acquisition would likely secure most of IC's book of
business with the agency but also revealed local competitors that would try to place the
business as well. In addition, the analysis revealed the opportunity for IC to move some
accounts currently placed with other insurers over to IC. Also, it was learned that a competitor
expressed an interest in the agency acquisition. The analysis performed by the risk manager is a
- ANSWER --D
A risk map showing a large difference between inherent and residual risk indicates which one of
the following?
A. The risk is within the organization's risk appetite
,B. The current risk treatment is ineffective
C. The current risk treatment is effective
D. The risk does not need to be treated - ANSWER --C
Lucas, a risk professional for Jones Incorporated, recently met with experts from the utility
industry to discuss the potential loss of supply and risks to the infrastructure. Lucas must now
decide which risks, and proposed treatments, need to be communicated to the board of Jones
Incorporated. Lucas should make this decision based on
A. The supply source involved.
B. The organization's risk appetite and tolerance levels.
C. Whether the risk in natural or man-made.
D. Whether any government regulations are involved or not. - ANSWER --B
Murray Trucking is interested in evaluating which risk factors are most likely to lead to the most
costly accidents. They are evaluating risk factors such as speed, weather conditions, driver
experience, distance traveled, and gross vehicle weight. Which one of the following statistical
measurements would be useful for the risk manager when calculating the probability of the
different risk factors causing severe accidents?
A. Telematics
B. Inverse covariance
C. Variance
D. Monte Carlo simulation - ANSWER --C
Blithe Manufacturing has experienced a drop in market share. The marketing department has
come up with a way to differentiate their product in order to regain market share. Blithe has
assembled a team of individuals representing different organizational functions to analyze both
internal and external factors of the new product and decide whether or not it is feasible. Which
one of the following team approaches to risk identification is Blithe using?
,A. Delphi technique
B. HAZOP workshop
C. SWOT analysis
D. Scenario analysis - ANSWER --C
William is a project manager for Parker International. He has been assigned a key project with a
short deadline. William realizes that this project is going to require revising the job duties of
some individuals and a collaborative effort from of all team members. When revising job duties,
William should do which one of the following?
A. Overload some individuals with more work than others
B. Try to enrich individuals' work rather than merely expand it
C. Rely on the most senior individuals to take on additional duties
D. Focus on the individuals' personality rather than results - ANSWER --B
Shelton Manufacturing executives are growing increasingly concerned about wildfires and the
potential effects on supply chain management. As the risk professional, Carla has been asked to
meet with experts on the subject and report back to the executive team. Which one of the
following should Carla do before meeting with external wildfire experts?
A. Carla should speak with internal subject-matter experts in hopes that she can avoid needing
the external wildfire experts.
B. Carla should research the field and get a working understanding of wildfires.
C. Carla should solicit questions from internal experts and submit them to the external wildfire
experts.
D. Carla should try to learn as much as possible about wildfires, so she can impress the wildfire
experts. - ANSWER --B
Cotton Products Company manufactures cotton clothing, towels, sheets, and other cotton
products. All production takes place at one large multi-acre production facility. The risk manager
, of Cotton Products Company called a meeting attended by her staff, the plant foreman, the
plant safety engineer, and the head of operations. She told the group that she wanted to
analyze one problem-the top event-a catastrophic fire at the production facility. The group
discussed all the causes of failure and factors that could contribute to the top event. The causes
of the -top event- were listed, and methods of reducing the likelihood and consequences of the
event were examined. The technique the risk manager employed is called
A. Failure mode and effects analysis (FMEA).
B. SWOT analysis.
C. Scenario analysis.
D. Fault tree analysis (FTA). - ANSWER --D
Home Appliance Company has decided to change its production method. Previously, small
teams of workers assembled washers, dryers, and dishwashers. Under the new production
method, an assembly-line will be used, with some functions performed by robotics. Before
making the change, Home Appliance Company has created a team of experts from company
personnel to identify all of the risks inherent in the new production method and to recommend
measures to address these risks. The team will assemble in a facilitated workshop and follow
these steps:
Divide the production method into components
Review each component to identify risk
Identify causes and potential outcomes for each risk
Develop a solution for each risk.
This team approach is risk identification is called a
A. SWOT (strengths, weaknesses, opportunities, threats) analysis.
B. Delphi technique.
C. Facilitated workshop.
D. Hazard and operability (HAZOP) study. - ANSWER --D
SE Industries has identified windstorm as a risk. The risk manager has assembled a team to
project the potential consequences of windstorm. The team includes individuals from various
2025-2026 WITH 100% CORRECT
ANSWERS
SoCal Movie Company produces movies at a studio in Southern California. The risk manager
decided to identify the range of potential consequences associated with various risks that the
company faces. For example, if a severe earthquake occurred while the company was filming a
movie, there could be deaths and injuries, destruction of movie sets, delays in production, costs
associated with filming at an alternative location, and loss of reputation and good will. The type
of analysis performed by the risk manager is called
A. SWOT analysis.
B. Scenario analysis.
C. Sensitivity analysis.
D. HAZOP analysis. - ANSWER --B
Insurance Company (IC) sells its coverages through independent insurance agents. Independent
agents represent several insurance companies. Tom, the president of IC, has learned that the
independent agent who is the highest producer for IC is considering selling his agency. IC is
considering acquiring the agency since Tom is concerned that if the agency is sold, IC may lose a
substantial amount of business. Tom asked IC's risk manager to analyze the prospective
purchase. The analysis revealed that the acquisition would likely secure most of IC's book of
business with the agency but also revealed local competitors that would try to place the
business as well. In addition, the analysis revealed the opportunity for IC to move some
accounts currently placed with other insurers over to IC. Also, it was learned that a competitor
expressed an interest in the agency acquisition. The analysis performed by the risk manager is a
- ANSWER --D
A risk map showing a large difference between inherent and residual risk indicates which one of
the following?
A. The risk is within the organization's risk appetite
,B. The current risk treatment is ineffective
C. The current risk treatment is effective
D. The risk does not need to be treated - ANSWER --C
Lucas, a risk professional for Jones Incorporated, recently met with experts from the utility
industry to discuss the potential loss of supply and risks to the infrastructure. Lucas must now
decide which risks, and proposed treatments, need to be communicated to the board of Jones
Incorporated. Lucas should make this decision based on
A. The supply source involved.
B. The organization's risk appetite and tolerance levels.
C. Whether the risk in natural or man-made.
D. Whether any government regulations are involved or not. - ANSWER --B
Murray Trucking is interested in evaluating which risk factors are most likely to lead to the most
costly accidents. They are evaluating risk factors such as speed, weather conditions, driver
experience, distance traveled, and gross vehicle weight. Which one of the following statistical
measurements would be useful for the risk manager when calculating the probability of the
different risk factors causing severe accidents?
A. Telematics
B. Inverse covariance
C. Variance
D. Monte Carlo simulation - ANSWER --C
Blithe Manufacturing has experienced a drop in market share. The marketing department has
come up with a way to differentiate their product in order to regain market share. Blithe has
assembled a team of individuals representing different organizational functions to analyze both
internal and external factors of the new product and decide whether or not it is feasible. Which
one of the following team approaches to risk identification is Blithe using?
,A. Delphi technique
B. HAZOP workshop
C. SWOT analysis
D. Scenario analysis - ANSWER --C
William is a project manager for Parker International. He has been assigned a key project with a
short deadline. William realizes that this project is going to require revising the job duties of
some individuals and a collaborative effort from of all team members. When revising job duties,
William should do which one of the following?
A. Overload some individuals with more work than others
B. Try to enrich individuals' work rather than merely expand it
C. Rely on the most senior individuals to take on additional duties
D. Focus on the individuals' personality rather than results - ANSWER --B
Shelton Manufacturing executives are growing increasingly concerned about wildfires and the
potential effects on supply chain management. As the risk professional, Carla has been asked to
meet with experts on the subject and report back to the executive team. Which one of the
following should Carla do before meeting with external wildfire experts?
A. Carla should speak with internal subject-matter experts in hopes that she can avoid needing
the external wildfire experts.
B. Carla should research the field and get a working understanding of wildfires.
C. Carla should solicit questions from internal experts and submit them to the external wildfire
experts.
D. Carla should try to learn as much as possible about wildfires, so she can impress the wildfire
experts. - ANSWER --B
Cotton Products Company manufactures cotton clothing, towels, sheets, and other cotton
products. All production takes place at one large multi-acre production facility. The risk manager
, of Cotton Products Company called a meeting attended by her staff, the plant foreman, the
plant safety engineer, and the head of operations. She told the group that she wanted to
analyze one problem-the top event-a catastrophic fire at the production facility. The group
discussed all the causes of failure and factors that could contribute to the top event. The causes
of the -top event- were listed, and methods of reducing the likelihood and consequences of the
event were examined. The technique the risk manager employed is called
A. Failure mode and effects analysis (FMEA).
B. SWOT analysis.
C. Scenario analysis.
D. Fault tree analysis (FTA). - ANSWER --D
Home Appliance Company has decided to change its production method. Previously, small
teams of workers assembled washers, dryers, and dishwashers. Under the new production
method, an assembly-line will be used, with some functions performed by robotics. Before
making the change, Home Appliance Company has created a team of experts from company
personnel to identify all of the risks inherent in the new production method and to recommend
measures to address these risks. The team will assemble in a facilitated workshop and follow
these steps:
Divide the production method into components
Review each component to identify risk
Identify causes and potential outcomes for each risk
Develop a solution for each risk.
This team approach is risk identification is called a
A. SWOT (strengths, weaknesses, opportunities, threats) analysis.
B. Delphi technique.
C. Facilitated workshop.
D. Hazard and operability (HAZOP) study. - ANSWER --D
SE Industries has identified windstorm as a risk. The risk manager has assembled a team to
project the potential consequences of windstorm. The team includes individuals from various
