GAQM ISO-31000-CLA ISO 31000 - Certified Lead Risk Manager Exam Practice Test

Risk management is core to governance and compliance4. Risk management helps to ensure that organizational objectives are achieved in a lawful, ethical, and transparent manner.

A train crash and its consequences is an example of risk aggregation, which is the combined effect of multiple risks on an organisation’s objectives3. Risk aggregation can result in losses that are greater than the sum of individual losses.

A fire occurring in a new manufacturing process line is an example of a pure risk, which is a situation that can only end in a loss12. For example, the fire could damage property, injure workers or disrupt operations.

 People processes and hard processes are two types of integrated processes3. People processes involve human factors such as culture, values, ethics, and behavior that influence risk management. Hard processes involve technical aspects such as methods, tools, techniques, and systems that support risk management.

According to 1, page 9, pure risk is “a situation where there are only two possible outcomes: loss or no loss”. Buying lottery tickets and selling a house are examples of speculative risk, where there is a possibility of gain or loss. Going horse riding without a helmet is an example of pure risk, where there is only a possibility of loss (injury) or no loss.

A primary benefit of a commercial customer self-insuring a risk is that its short-term cash-flow position is likely to improve. This is because self-insurance reduces or eliminates insurance premiums and administrative costs associated with external insurers.

Uncertainty leads to a changing context2. This means that uncertainty creates variability in outcomes and expectations, which may affect the objectives and scope of risk management.

 Enhanced risk management ensures that uncertainty is managed so the organization can meet its objectives4. Enhanced risk management involves applying a systematic and logical process to identify, analyze, evaluate, treat, monitor, review, and communicate risks.

 ISO uses the concept of uncertainty as the driver and rationale for risk management. Uncertainty refers to the state of having incomplete knowledge or understanding about something that can affect an organization’s objectives.

External and internal risks are significant risks of reporting that are outside the risk appetite of the organization and can impact compliance, which may also be reportable to regulatory agencies1. These risks may arise from external factors such as market changes, natural disasters, or cyberattacks, or internal factors such as human errors, fraud, or system failures.

Treatment plan becomes a living document of defining the direction of the risk treatment and being able to monitor progress against the plan3. Treatment plan helps to ensure that risk treatment actions are aligned with the changing context, objectives, and stakeholder expectations.

Risk management ensures that value is created by identifying opportunities for investment, mergers, or acquisition. Risk management helps to assess the potential benefits, costs, and risks of different options and make informed decisions.

Communication with stakeholders, customers, and interested parties is an essential element for maintaining the relevance of enhanced risk management within the structure of a changing context3. Communication helps to establish trust, transparency, accountability, and feedback mechanisms for risk management.

According to 2, domain 1, ERM “is a coordinated set of activities and methods that is used by organizations to manage risks across the enterprise”. It takes an integrated or holistic approach that considers all types of risks and their interrelationships across the organization’s functions and levels.