ARM 402 chapter 1-8 Questions and Answers
What does risk treatment involve? -Answer- Making decisions based on the results of a risk assessment
- Risk-response panning
What is the goal of each risk identified as needing treatment? -Answer- Select one or multiple
treatment options that best help the organization achieve its strategic objectives
What type of process is risk treatment? -Answer- A continual process
What does risk treatment entail? -Answer- Examining each risk treatment option in terms of whether it
leads to a tolerable level of residual risk or helps the org maximize the potential benefits of an
opportunity
What else does risk treatment involve? -Answer- Selecting, communicating, and implementing risk
treatment options and measuring effectiveness
Are treatment techniques mutually exclusive? -Answer- No
- Many risks call for a combo of techniques
What does successful risk management depend on? -Answer- Effective communication
What does effective communication from risk professionals entail? -Answer- Inform decision makers
and stakeholders of not only the overall strategy but also the steps needed to implement it and how its
success can be measured
Risk Treatment Technique options -Answer- Avoid the risk
Modify the risk
Transfer the risk
Retain the risk
Exploit the risk
,Avoid the risk -Answer- Stop or canceling the activity that would cause the risk
When does an org exercise risk avoidance? -Answer- Risk is deemed too high to take on in any form
Modify the risk -Answer- Increasing or decreasing an event's likelihood and/or consequences that will
result in a positive or negative outcomes
Types of risk modification -Answer- Loss prevention
Loss Reduction
Transfer the risk -Answer- Sharing the risk with, or moving it entirely to, another party
What is a prime example of risk transfer? -Answer- Purchasing insurance
Retain the risk -Answer- Accepting and absorbing some or all of the consequences of the risk
When is risk retention used? -Answer- Often used only after other treatment techniques have been
considered
When the potential negative consequences associated with it are low
What other techniques is risk retentions typically used with? -Answer- Risk modification and risk
transfer
What should orgs do if they choose to retain their risk? -Answer- Carefully analyzed so that the org fully
understands the extent of the risk
When would an org choose to retain more risk? -Answer- In order to exploit an opportunity
Exploit the risk -Answer- Taking actions to maximize the expected gains of opportunities
,What should treatment selection include? -Answer- Cost-benefit analysis to ensure that the benefits of
a treatment option outweigh the related costs
Prouty Approach -Answer- Analyzes a risk's loss likelihood and impact to determine a proper treatment
Matrix to determine which treatment is best
Four categories of loss likelihood -Answer- Almost nil
Slight
Moderate
Definite
Three categories of loss impact -Answer- Slight
Significant
Severe
Are these categories objective or subjective? -Answer- Subjective
What do the categories provide to risk management professionals -Answer- Means of communicating
and justifying the priority they believe should be placed on a risk as well as a means of providing risk
treatment suggestions
Prouty Approach Example -Answer-
What activities are retained and accounted for in the annual budget? -Answer- Activities with losses
that have a slight chance of occurring and are of low impact
What risks typically call for modification? -Answer- Risks that fall in the middle of loss likelihood and
loss impact
, What elements does a treatment plan must contain? -Answer- Explanation of treatment technique
Proposed actions
Resource requirements
Roles and responsibilities
Timeline
Monitoring requirements
Risk financing -Answer- Form of risk treatment that is needed to pay for the cost of an org's risk
What does risk financing typically entail? -Answer- Transfer or retention of risk
What is dramatically changing the risk financing environment? -Answer- Technology
What must every org do in order to achieve strategic objectives? -Answer- Find ways to pay for the
corresponding risks and treatments
The more risk an org retains... -Answer- the more funds it must allocate to finance those risks
What are those funds to finance those risks used for? -Answer- Apply the risk treatments of avoidance,
modification, transfer, and retention
What risk treatments have been affected the most by technology? -Answer- Modification and transfer
What orgs are in a better position to take full advantage of emerging technologies? -Answer- Orgs that
use risk committees composed of cross-functional decision-makers and stakeholders and discuss
emerging risks and potential technological treatments
Why are risk committees important in terms of tech? -Answer- Because tech and its risk management
ramifications evolves too fast for any single person to keep track of
What does risk treatment involve? -Answer- Making decisions based on the results of a risk assessment
- Risk-response panning
What is the goal of each risk identified as needing treatment? -Answer- Select one or multiple
treatment options that best help the organization achieve its strategic objectives
What type of process is risk treatment? -Answer- A continual process
What does risk treatment entail? -Answer- Examining each risk treatment option in terms of whether it
leads to a tolerable level of residual risk or helps the org maximize the potential benefits of an
opportunity
What else does risk treatment involve? -Answer- Selecting, communicating, and implementing risk
treatment options and measuring effectiveness
Are treatment techniques mutually exclusive? -Answer- No
- Many risks call for a combo of techniques
What does successful risk management depend on? -Answer- Effective communication
What does effective communication from risk professionals entail? -Answer- Inform decision makers
and stakeholders of not only the overall strategy but also the steps needed to implement it and how its
success can be measured
Risk Treatment Technique options -Answer- Avoid the risk
Modify the risk
Transfer the risk
Retain the risk
Exploit the risk
,Avoid the risk -Answer- Stop or canceling the activity that would cause the risk
When does an org exercise risk avoidance? -Answer- Risk is deemed too high to take on in any form
Modify the risk -Answer- Increasing or decreasing an event's likelihood and/or consequences that will
result in a positive or negative outcomes
Types of risk modification -Answer- Loss prevention
Loss Reduction
Transfer the risk -Answer- Sharing the risk with, or moving it entirely to, another party
What is a prime example of risk transfer? -Answer- Purchasing insurance
Retain the risk -Answer- Accepting and absorbing some or all of the consequences of the risk
When is risk retention used? -Answer- Often used only after other treatment techniques have been
considered
When the potential negative consequences associated with it are low
What other techniques is risk retentions typically used with? -Answer- Risk modification and risk
transfer
What should orgs do if they choose to retain their risk? -Answer- Carefully analyzed so that the org fully
understands the extent of the risk
When would an org choose to retain more risk? -Answer- In order to exploit an opportunity
Exploit the risk -Answer- Taking actions to maximize the expected gains of opportunities
,What should treatment selection include? -Answer- Cost-benefit analysis to ensure that the benefits of
a treatment option outweigh the related costs
Prouty Approach -Answer- Analyzes a risk's loss likelihood and impact to determine a proper treatment
Matrix to determine which treatment is best
Four categories of loss likelihood -Answer- Almost nil
Slight
Moderate
Definite
Three categories of loss impact -Answer- Slight
Significant
Severe
Are these categories objective or subjective? -Answer- Subjective
What do the categories provide to risk management professionals -Answer- Means of communicating
and justifying the priority they believe should be placed on a risk as well as a means of providing risk
treatment suggestions
Prouty Approach Example -Answer-
What activities are retained and accounted for in the annual budget? -Answer- Activities with losses
that have a slight chance of occurring and are of low impact
What risks typically call for modification? -Answer- Risks that fall in the middle of loss likelihood and
loss impact
, What elements does a treatment plan must contain? -Answer- Explanation of treatment technique
Proposed actions
Resource requirements
Roles and responsibilities
Timeline
Monitoring requirements
Risk financing -Answer- Form of risk treatment that is needed to pay for the cost of an org's risk
What does risk financing typically entail? -Answer- Transfer or retention of risk
What is dramatically changing the risk financing environment? -Answer- Technology
What must every org do in order to achieve strategic objectives? -Answer- Find ways to pay for the
corresponding risks and treatments
The more risk an org retains... -Answer- the more funds it must allocate to finance those risks
What are those funds to finance those risks used for? -Answer- Apply the risk treatments of avoidance,
modification, transfer, and retention
What risk treatments have been affected the most by technology? -Answer- Modification and transfer
What orgs are in a better position to take full advantage of emerging technologies? -Answer- Orgs that
use risk committees composed of cross-functional decision-makers and stakeholders and discuss
emerging risks and potential technological treatments
Why are risk committees important in terms of tech? -Answer- Because tech and its risk management
ramifications evolves too fast for any single person to keep track of
