Understanding Enterprise Risk Management

What is the purpose of risk assessment techniques?

• To create new risks for evaluation.

• To ignore potential threats and vulnerabilities.

• The purpose of risk assessment techniques is to identify, evaluate, and prioritize risks.

• To eliminate all risks completely.

Describe a risk mitigation strategy that can be implemented in an organization.

• Increase the number of meetings to discuss risks

• Outsource all risk management to a third party

• Ignore minor risks to focus on major ones

• Implement a comprehensive training program for employees to enhance risk awareness and response.

How can technology aid in risk assessment and mitigation?

• Technology enhances risk assessment and mitigation through data analytics, predictive modeling, and real-time monitoring.

• Technology eliminates all risks without analysis.

• Technology is only useful for financial assessments.

• Technology complicates risk assessment with unnecessary data.

What are the potential consequences of poor risk management in an enterprise?

• Increased employee satisfaction

• Enhanced market share

• Improved customer loyalty

• Financial losses, reputational damage, legal penalties, operational disruptions, and loss of competitive advantage.

A courier company expands into a new international market without conducting a thorough assessment of local regulations and customs requirements.

What type of risk is the company most exposed to in this scenario?

• Operational risk

• Regulatory risk

• Strategic risk

• Market risk

A manufacturing firm is located in a region prone to flooding. Past floods have disrupted production for days.

Which of the following is the most suitable risk mitigation strategy?

• Outsource all production to a foreign country

• Increase insurance coverage and develop a disaster recovery plan

• Ignore the risk due to low probability of recurrence

• Reduce workforce to cut costs

An e-commerce company relies heavily on a single logistics partner. The partner recently announced internal restructuring, which may affect delivery timelines.

Which combination correctly identifies the risk type, impact level, and mitigation strategy?

• Operational risk – High – Diversify logistics partners

• Strategic risk – Medium – Increase marketing

• Legal risk – Low – Monitor restructuring

• Financial risk – Medium – Buy more inventory

A small business faces the risk of employee fraud due to lack of proper checks and balances.

Which of the following is the most effective mitigation measure?

• Eliminate bonuses

• Install CCTV systems

• Implement internal controls and audit trails

• Increase product pricing

Interconnected risks refer to situations where one type of risk (e.g., strategic) triggers or worsens another (e.g., operational or compliance), creating a chain of negative consequences that can amplify overall exposure.

Scenario:
A publicly listed airline implements a cost-cutting strategy that includes outsourcing aircraft maintenance to a low-cost provider abroad. Within six months, customer complaints and mechanical issues begin to rise, leading to scrutiny from aviation authorities.

Which of the following best describes the interconnected risk emerging from this decision?

• Financial risk leading to reputational risk

• Strategic risk leading to compliance and operational risk

• Market risk leading to liquidity risk

• Operational risk leading to credit risk

Risk appetite refers to the level and type of risk an organisation is willing to accept in pursuit of its objectives, as determined by its strategic goals, values, and governance policies.

Scenario:
A fintech startup is offered a large investment opportunity in cryptocurrency assets that could double its returns in six months. However, these assets are highly volatile and unregulated. The company has a moderate risk appetite defined in its governance policy.

Which risk response strategy aligns best with the company's documented risk appetite?

• Accept the opportunity and adjust risk appetite accordingly

• Avoid the investment due to misalignment with risk appetite

• Transfer the risk by entering a joint venture with a crypto firm

• Exploit the opportunity to increase market valuation