Which of the following guidelines should be followed for effective risk management? Each correct answer represents a complete solution.
Choose three.
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A. B. C. D.BCD.
The primary function of the enterprise is to meet its objective.
Each business activity for fulfilling enterprise's objective carries both risk and opportunity, therefore objective should be considered while managing risk.
Open and fair communication should me there for effective risk management.
Open, accurate, timely and transparent information on lT risk is exchanged and serves as the basis for all risk-related decisions.
Cost-benefit analysis should be done for proper weighing the total costs expected against the total benefits expected, which is the major aspect of risk management.
Incorrect Answers: A: For effective risk management, there should be continuous improvement, not consistent.
Because of the dynamic nature of risk, risk management is an iterative, perpetual and ongoing process; that's why, continuous improvement is required.
Effective risk management is a critical component of any organization's success. It helps the organization identify, evaluate, and manage risks that could negatively impact its operations, reputation, or financial performance. To achieve this objective, the following guidelines should be followed:
A. Promote and support consistent performance in risk management: This guideline emphasizes the importance of establishing a risk management framework that is consistent across the organization. This includes establishing policies, procedures, and processes for identifying, assessing, and managing risks. It also involves providing training and resources to ensure that employees are equipped with the skills and knowledge necessary to carry out their risk management responsibilities effectively.
B. Promote fair and open communication: Effective risk management requires open and honest communication between all stakeholders. This guideline encourages the establishment of a culture of transparency, where employees feel comfortable reporting risks and concerns without fear of retaliation. It also emphasizes the importance of sharing risk-related information across the organization to ensure that everyone has a clear understanding of the risks that the organization faces.
C. Focus on enterprise's objective: Effective risk management should be aligned with the organization's overall objectives. This guideline emphasizes the importance of understanding the organization's strategic goals and objectives and ensuring that risk management activities support these goals. This involves prioritizing risks based on their potential impact on the organization's objectives and focusing resources on the most significant risks.
D. Balance the costs and benefits of managing risk: Risk management involves costs, including the cost of implementing risk mitigation measures and the cost of managing the risk itself. This guideline emphasizes the importance of striking a balance between the costs and benefits of managing risks. This involves evaluating the potential impact of each risk and determining the most cost-effective way of managing it. It also involves considering the potential costs of not managing the risk and balancing these against the costs of managing the risk.
In summary, effective risk management requires a holistic approach that takes into account the organization's strategic objectives, promotes open communication, establishes consistent risk management practices, and balances the costs and benefits of managing risk.