Which of the following BEST indicates a successful risk management practice?
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A. B. C. D.C.
A successful risk management practice minimizes the residual risk to the organization.
Choice A is incorrect because the fact that overall risk has been quantified does not necessarily indicate the existence of a successful risk management practice.
Choice B is incorrect since it is virtually impossible to eliminate inherent risk.
Choice D is incorrect because, although the tying of control risks to business may improve accountability, this is not as desirable as minimizing residual risk.
The BEST indication of a successful risk management practice is the minimization of residual risk, as stated in option C. Here's why:
A. Overall risk is quantified: Quantifying the overall risk of an organization is a crucial step in the risk management process. However, simply quantifying the risk does not guarantee successful risk management. Risk quantification provides a baseline for decision-making and prioritizing controls, but it does not necessarily mean that the organization is effectively managing its risks. In addition, quantifying risk is not always possible, and relying solely on risk metrics can lead to a false sense of security.
B. Inherent risk is eliminated: Inherent risk refers to the level of risk that exists before implementing any controls or mitigation measures. It is not possible to eliminate inherent risk entirely because all activities and processes involve some level of risk. Furthermore, risk elimination is not always feasible or cost-effective. While it is desirable to minimize inherent risk, the successful management of risk lies in identifying, assessing, and managing residual risk.
C. Residual risk is minimized: Residual risk refers to the level of risk that remains after implementing controls or mitigation measures. The goal of risk management is to reduce the residual risk to an acceptable level. By minimizing residual risk, organizations can ensure that they have effectively identified and addressed the most critical risks, thereby reducing the likelihood and impact of adverse events.
D. Control risk is tied to business units: Control risk is the risk that arises from the failure of controls to operate as intended. While it is important to tie control risk to business units, it is not sufficient to ensure successful risk management. Effective risk management requires a comprehensive and integrated approach that involves all levels of the organization and considers the impact of risk on business objectives.
In conclusion, the BEST indication of a successful risk management practice is the minimization of residual risk, as it demonstrates that the organization has identified and addressed the most critical risks to an acceptable level.