Introduction to Risk Management
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| What are the steps in the risk management process? | show 🗑
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| show | The probability that a (loss) event will occur
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| show | Also known as particular or specific risk. A risk that affects only individuals and not an entire community. This is no correlation among losses.
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| Nondiversifiable risk | show 🗑
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| show | A term that encompasses all major risks faced by a business, including pure (hazard) risks, speculative risks, business and financial risks, even strategic risks.
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| show | 1. hazard risk
2. financial risk
3. operational risk
4. strategic risk
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| show | conditions that increase the frequency or severity of losses.
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| show | 1. Physical hazard
2. Moral hazard
3. Morale hazard
4. Legal hazard
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| show | A risk that is faced by businesses due to adverse changes in commodity prices, interest rates, or foreign exchange rates
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| Moral hazard | show 🗑
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| Morale hazard | show 🗑
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| Physical hazard | show 🗑
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| show | The possibility that a change in laws will ultimately increase losses (especially for insurers).
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| show | 1. Expected cost of paying losses (offset by potential gains)
2. Expenditures on risk management (in an attempt to reduce losses)
3. Cost of residual uncertainty
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| Loss exposure | show 🗑
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| Objective risk | show 🗑
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| Subjective risk | show 🗑
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| show | a specific cause of loss (example: fire)
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| Risk | show 🗑
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| Pure risk | show 🗑
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| Speculative risk | show 🗑
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| show | 1. an asset is exposed to loss in value
2. a peril can impair the asset, as well as the hazards which increase the chance of loss
3. financial consequences of the loss
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| show | 1. property
2. liability
3. personnel (personal)
4. net income
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| Tangible vs. intangible property | show 🗑
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| show | a property owner can sustain loss from damage, destruction, or theft in which the owner has financial interest
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| Liability loss exposure | show 🗑
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| show | possibility that the skills of a key employee will be lost due to injury, sickness, disability, or death
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| show | Possibility that net income will decline. Often result
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| show | 1. preparation for loss in the most cost effective manner
2. Keeps uncertainty at a tolerable level
3. Ensure legal obligations are satisfied
4. social responsibility
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| What are different levels of goals for risk management after a loss has occurred? | show 🗑
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| show | Financial loss that results from (is speciafally caused by) an insured peril
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| show | Financial loss occurring as the result of some other loss (also called consequential loss). An example is business interruption where a business is closed following a direct loss.
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| objective probability | show 🗑
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| subjective probability | show 🗑
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| law of large numbers | show 🗑
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| show | A two-dimensional assessment of the risks faced by an organization which begins the process of selecting risk management tools. A risk map illustrates the frequency and the severity/impact of each risk.
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| Frequency | show 🗑
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| show | the dollar impact of a loss if a business or individual becomes affected
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| What are the two major categories of risk management techniques that are available? | show 🗑
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| show | any technique that attempts to reduce the amount of losses experienced
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| show | any technique that is used to pay for losses when they occur
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| show | reduction in productive capacity of economy (damaged factories don't produce), individuals would have larger emergency funds, discontinued goods/services, worry and fear
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| What are the benefits of risk management? | show 🗑
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| probability | show 🗑
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| risk management | show 🗑
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