RMI 2302 MODULE 1 (NYCE) QUESTIONS
What is Risk? - Answers :Many Definitions:
-Individual
-Organization
-Society
"Uncertainty Regarding Loss"
Using the Term Risk - Answers :Which is riskier?
-Jumping off of a 1-story building
-Jumping off of a 25-story building
What is a "high risk driver"
Danger/=Risk
Risk Measurement - Terminology - Answers :-Frequency/Likelihood
-Severity/Impact
-Expected Value (Loss)
-Risk Profile
Risk Measurement - Degree of Risk - Answers :-Relative variation of actual from
expected loss (variation or standard deviation)
-How far is it from what we expected to happen to what actually happened?
Start Thinking about Risk - Answers :-Uncertainty is doubt about our ability to predict
future outcomes
-Uncertainty can differ across individuals even when risk is the same (subjective)
-Information does not alter risk (objective), but can alter uncertainty
-Reduction in uncertainty can be a good thing
Categories of Risk - Answers :Pure vs. Speculative
Static vs. Dynamic
Fundamental vs. Particular
Core vs. Secondary
Pure vs. Speculative - Answers :Pure risks are risks that involve only two potential
outcomes, either loss or no loss. For example, when you leave class your car is either
there, or it was stolen. The car did not suddenly increase in value while you were in
class. Your two potential states of nature are loss or no loss, there is no possibility of
gain.
Speculative risks are risks where you may have a loss or no loss, but also have a gain.
For example, buying a share of Google, it can go up in value, go down in value or
remain the same.
, Static vs. Dynamic Risk - Answers :Static risks are risks that are unchanging through
time. For example, the chance of an earthquake or the chance of the earth getting hit by
a meteor are generally static risks. They don't change from day to day or even year to
year.
Dynamic risks are risks that are changing through time. For example, the risk of identity
theft, or credit card numbers being stolen during online transactions are much different
today than just a few years ago.
Fundamental vs. Particular Risk - Answers :Fundamental risks are risks that affect a
large portion of the population at a given time. For example, a hurricane, or health
pandemic.
Particular risks are risks that only affect a single person, or small group of people at a
given time. For example, an auto accident
Core vs. Secondary - Answers :Core risks are risks that are inherent to the fundamental
activities of an organization. For example, UPS and the risk of traffic accidents.
Secondary risks are risks that are not part of the core operations of an organization. For
example, speculative derivative trading by UPS.
Sources of Risk - Answers :Personal Risks: risks that are directly related to an
individual's life, health or safety
Property Risks: risks that are directly related to the potential for damage to physical
property (buildings, cars, jewelry, etc...)
Liability Risks: risks that are directly related to an individual being held liable for its
actions or inactions. For example, inflicting physical harm on another individual or
damaging someone else's property
Financial Risks: risks that are directly related to the financial standing of an individual or
organization. For example, investment risks, new product launches, etc...
Exposure - Answers :person or property facing risk of loss
Peril - Answers :the immediate cause of loss
Hazard - Answers :condition affecting the frequency or severity of loss
Physical hazard - tangible conditions, e.g. a wet floor makes it more likely someone will
slip and fall.
What is Risk? - Answers :Many Definitions:
-Individual
-Organization
-Society
"Uncertainty Regarding Loss"
Using the Term Risk - Answers :Which is riskier?
-Jumping off of a 1-story building
-Jumping off of a 25-story building
What is a "high risk driver"
Danger/=Risk
Risk Measurement - Terminology - Answers :-Frequency/Likelihood
-Severity/Impact
-Expected Value (Loss)
-Risk Profile
Risk Measurement - Degree of Risk - Answers :-Relative variation of actual from
expected loss (variation or standard deviation)
-How far is it from what we expected to happen to what actually happened?
Start Thinking about Risk - Answers :-Uncertainty is doubt about our ability to predict
future outcomes
-Uncertainty can differ across individuals even when risk is the same (subjective)
-Information does not alter risk (objective), but can alter uncertainty
-Reduction in uncertainty can be a good thing
Categories of Risk - Answers :Pure vs. Speculative
Static vs. Dynamic
Fundamental vs. Particular
Core vs. Secondary
Pure vs. Speculative - Answers :Pure risks are risks that involve only two potential
outcomes, either loss or no loss. For example, when you leave class your car is either
there, or it was stolen. The car did not suddenly increase in value while you were in
class. Your two potential states of nature are loss or no loss, there is no possibility of
gain.
Speculative risks are risks where you may have a loss or no loss, but also have a gain.
For example, buying a share of Google, it can go up in value, go down in value or
remain the same.
, Static vs. Dynamic Risk - Answers :Static risks are risks that are unchanging through
time. For example, the chance of an earthquake or the chance of the earth getting hit by
a meteor are generally static risks. They don't change from day to day or even year to
year.
Dynamic risks are risks that are changing through time. For example, the risk of identity
theft, or credit card numbers being stolen during online transactions are much different
today than just a few years ago.
Fundamental vs. Particular Risk - Answers :Fundamental risks are risks that affect a
large portion of the population at a given time. For example, a hurricane, or health
pandemic.
Particular risks are risks that only affect a single person, or small group of people at a
given time. For example, an auto accident
Core vs. Secondary - Answers :Core risks are risks that are inherent to the fundamental
activities of an organization. For example, UPS and the risk of traffic accidents.
Secondary risks are risks that are not part of the core operations of an organization. For
example, speculative derivative trading by UPS.
Sources of Risk - Answers :Personal Risks: risks that are directly related to an
individual's life, health or safety
Property Risks: risks that are directly related to the potential for damage to physical
property (buildings, cars, jewelry, etc...)
Liability Risks: risks that are directly related to an individual being held liable for its
actions or inactions. For example, inflicting physical harm on another individual or
damaging someone else's property
Financial Risks: risks that are directly related to the financial standing of an individual or
organization. For example, investment risks, new product launches, etc...
Exposure - Answers :person or property facing risk of loss
Peril - Answers :the immediate cause of loss
Hazard - Answers :condition affecting the frequency or severity of loss
Physical hazard - tangible conditions, e.g. a wet floor makes it more likely someone will
slip and fall.
