ARM 402
risk treatment - correct answer ✔-the selection and implementation of
actions to help manage or mitigate a risk
-a continual process that entails examining each option in terms of whether it
leads to a tolerable level or residual risk or helps the org maximize the
potential benefits of an opportunity
-treatments are not mutually exclusive
-cost of each treatment option should be weighed against its potential benefits
(cost-benefit analysis)
risk treatment techniques - correct answer ✔1. avoid the risk: stopping or
canceling the activity
2. modify the risk: increasing or decreasing an event's likelihood and/or
consequences that will result in positive or negative outcomes; loss prevention
or loss reduction
3. transfer the risk: sharing the risk with, or moving it entirely to, another party;
insurance or outsourcing
4. retain the risk: accepting and absorbing some or all of the consequences of
the risk; used when potential negative consequences are low
5. exploit the risk: taking actions to maximize the expected gains of
opportunities; actions to exploit risks can create more risks
the Prouty Approach - correct answer ✔-a way to select a risk treatment
-analyzes a risk's loss likelihood and impact to determine a proper treatment
-when a risk's likelihood and impact could be accurately estimated, risk
managers could use a matrix to determine which treatment method would be
best
-four categories of loss likelihood: almost nil, slight, moderate, definite
-three categories of loss impact: slight, significant, severe
,-matrix communicates and justifies priority of a risk
-similar concept to a heat map
-activities with losses that have a slight change of occurring and are of low
impact tend to be retained and accounted for in the budget
-activity with high likelihood and intolerable impact is typically avoided
-in the middle: typically call for modification
risk treatment plan - correct answer ✔-once or selects a risk treatment
technique, it needs to develop a risk treatment plan to outline how the org will
implement and monitor the technique
-to be effective, plan needs each of these elements:
*explanation of treatment technique
*proposed actions: document proposed actions and how they will be
prioritized
*resource requirements: identify resources required
*roles and responsibilities: determine involvement and accountability
*timeline
*monitoring requirements: indicate how performance will be measured,
monitored, and reported to upper management
risk financing - correct answer ✔-a risk management technique that includes
steps to pay for or transfer the cost of losses
-must be a part of every org's holistic risk management strategy
-the more risk an org retains to pursue opportunities, the more funds it must
allocate to finance those risks
-these funds are then used to apply risk treatments
,technology's impact on risk modification - correct answer ✔-IoT devices,
sensors, wearables, and telematics allow orgs to accurately identify patterns
of risk, model risk, and predict risk
-in some cases, risk can be predicted so accurately that it can be modified to
the point of being nearly preventable; can create significant cost savings for
orgs and insurers
-insurers could charge a lower premium if you have sensors or something like
that in place; but they do come with their own risk
-advancements in forecasting could result in minimal financing being required
to retain, transfer, or modify negative risks
-must factor in that there is a cost associated with forecasting technology
Technology's impact on Risk Transfer - correct answer ✔-growing access to
big data, machine learning and AI have made it easier for insurers to predict,
plan for risk, and to develop products that specifically address certain risks
-insurers can price policies more precisely
-insurers have the ability to create alternative products: parametric insurance
was too costly for such small events, but now it can all be processed
electronically making it worth it
Technology's impact on Financial Transactions - correct answer ✔-smart
contracts and blockchain
-technology is constantly speeding up the recovery process of orgs of
recouping financial losses and regaining the position it was in before the loss
occurred
-smart insurance contracts can dramatically increase the speed of loss
payments, as well as reduce administrative costs for insurers
-ex: if the blockchain receives a signal that a flood has occurred in your area
(could come from sensors), the blockchain could instantly determine whether
your business is covered for a flood loss. having detected that your business
has coverage, a loss payment could be deposited directly into your org's bank
, account. the claim, verification of coverage, and payment could be completed
within seconds rather than days or weeks
risk treatment applications - correct answer ✔-risk management
professionals will likely treat risks differently depending on the quadrants they
fall into
separation & duplication - correct answer ✔-separation: a type of
modification that disperses a particular asset or activity over several locations;
can reduce an org's dependence on a single asset, activity, or person, making
individual losses smaller
-duplication: a type of modification that duplicates exposure units; can reduce
dependence and making losses smaller also
-drawback with both is that separation and duplication create an additional
risk: the second server could be breached
holistic risk treatment - correct answer ✔-an approach to treating all of an
org's risks and opportunities in a way that uses available resources as
efficiently as possible to maximize outcomes
-sometimes there is resistance from department heads and decision makers
when it comes to sharing info
-knowing how one risk treatment can affect another can be particularly
valuable to decision makers
-in a holistic approach, gains in one area of an org can be used to offset
losses from another (could eliminate the need to treat the risk resulting in a
loss)
-siloed approach: org would dedicate resources to treat the risk resulting in a
loss without considering the possible gains in another area, potentially
resulting in the org's treating the negative risk unnecessarily
-a way to picture this is with a chart that compares a pure risk with a
speculative risk. on their own, each risk only has two possible outcomes;
together, the two risks can have four possible outcomes
risk treatment - correct answer ✔-the selection and implementation of
actions to help manage or mitigate a risk
-a continual process that entails examining each option in terms of whether it
leads to a tolerable level or residual risk or helps the org maximize the
potential benefits of an opportunity
-treatments are not mutually exclusive
-cost of each treatment option should be weighed against its potential benefits
(cost-benefit analysis)
risk treatment techniques - correct answer ✔1. avoid the risk: stopping or
canceling the activity
2. modify the risk: increasing or decreasing an event's likelihood and/or
consequences that will result in positive or negative outcomes; loss prevention
or loss reduction
3. transfer the risk: sharing the risk with, or moving it entirely to, another party;
insurance or outsourcing
4. retain the risk: accepting and absorbing some or all of the consequences of
the risk; used when potential negative consequences are low
5. exploit the risk: taking actions to maximize the expected gains of
opportunities; actions to exploit risks can create more risks
the Prouty Approach - correct answer ✔-a way to select a risk treatment
-analyzes a risk's loss likelihood and impact to determine a proper treatment
-when a risk's likelihood and impact could be accurately estimated, risk
managers could use a matrix to determine which treatment method would be
best
-four categories of loss likelihood: almost nil, slight, moderate, definite
-three categories of loss impact: slight, significant, severe
,-matrix communicates and justifies priority of a risk
-similar concept to a heat map
-activities with losses that have a slight change of occurring and are of low
impact tend to be retained and accounted for in the budget
-activity with high likelihood and intolerable impact is typically avoided
-in the middle: typically call for modification
risk treatment plan - correct answer ✔-once or selects a risk treatment
technique, it needs to develop a risk treatment plan to outline how the org will
implement and monitor the technique
-to be effective, plan needs each of these elements:
*explanation of treatment technique
*proposed actions: document proposed actions and how they will be
prioritized
*resource requirements: identify resources required
*roles and responsibilities: determine involvement and accountability
*timeline
*monitoring requirements: indicate how performance will be measured,
monitored, and reported to upper management
risk financing - correct answer ✔-a risk management technique that includes
steps to pay for or transfer the cost of losses
-must be a part of every org's holistic risk management strategy
-the more risk an org retains to pursue opportunities, the more funds it must
allocate to finance those risks
-these funds are then used to apply risk treatments
,technology's impact on risk modification - correct answer ✔-IoT devices,
sensors, wearables, and telematics allow orgs to accurately identify patterns
of risk, model risk, and predict risk
-in some cases, risk can be predicted so accurately that it can be modified to
the point of being nearly preventable; can create significant cost savings for
orgs and insurers
-insurers could charge a lower premium if you have sensors or something like
that in place; but they do come with their own risk
-advancements in forecasting could result in minimal financing being required
to retain, transfer, or modify negative risks
-must factor in that there is a cost associated with forecasting technology
Technology's impact on Risk Transfer - correct answer ✔-growing access to
big data, machine learning and AI have made it easier for insurers to predict,
plan for risk, and to develop products that specifically address certain risks
-insurers can price policies more precisely
-insurers have the ability to create alternative products: parametric insurance
was too costly for such small events, but now it can all be processed
electronically making it worth it
Technology's impact on Financial Transactions - correct answer ✔-smart
contracts and blockchain
-technology is constantly speeding up the recovery process of orgs of
recouping financial losses and regaining the position it was in before the loss
occurred
-smart insurance contracts can dramatically increase the speed of loss
payments, as well as reduce administrative costs for insurers
-ex: if the blockchain receives a signal that a flood has occurred in your area
(could come from sensors), the blockchain could instantly determine whether
your business is covered for a flood loss. having detected that your business
has coverage, a loss payment could be deposited directly into your org's bank
, account. the claim, verification of coverage, and payment could be completed
within seconds rather than days or weeks
risk treatment applications - correct answer ✔-risk management
professionals will likely treat risks differently depending on the quadrants they
fall into
separation & duplication - correct answer ✔-separation: a type of
modification that disperses a particular asset or activity over several locations;
can reduce an org's dependence on a single asset, activity, or person, making
individual losses smaller
-duplication: a type of modification that duplicates exposure units; can reduce
dependence and making losses smaller also
-drawback with both is that separation and duplication create an additional
risk: the second server could be breached
holistic risk treatment - correct answer ✔-an approach to treating all of an
org's risks and opportunities in a way that uses available resources as
efficiently as possible to maximize outcomes
-sometimes there is resistance from department heads and decision makers
when it comes to sharing info
-knowing how one risk treatment can affect another can be particularly
valuable to decision makers
-in a holistic approach, gains in one area of an org can be used to offset
losses from another (could eliminate the need to treat the risk resulting in a
loss)
-siloed approach: org would dedicate resources to treat the risk resulting in a
loss without considering the possible gains in another area, potentially
resulting in the org's treating the negative risk unnecessarily
-a way to picture this is with a chart that compares a pure risk with a
speculative risk. on their own, each risk only has two possible outcomes;
together, the two risks can have four possible outcomes
