Which among the following acts as a trigger for risk response process?
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A. B. C. D.B.
The risk response process is triggered when a risk exceeds the enterprise's risk tolerance level.
The acceptable variation relative to the achievement of an objective is termed as risk tolerance.
In other words, risk tolerance is the acceptable deviation from the level set by the risk appetite and business objectives.
Risk tolerance is defined at the enterprise level by the board and clearly communicated to all stakeholders.
A process should be in place to review and approve any exceptions to such standards.
Incorrect Answers: A, C: Risk appetite level is not relevant in triggering of risk response process.
Risk appetite is the amount of risk a company or other entity is willing to accept in pursuit of its mission.
This is the responsibility of the board to decide risk appetite of an enterprise.
When considering the risk appetite levels for the enterprise, the following two major factors should be taken into account: -> The enterprise's objective capacity to absorb loss, e.g., financial loss, reputation damage, etc.
-> The culture towards risk taking-cautious or aggressive.
In other words, the amount of loss the enterprise wants to accept in pursue of its objective fulfillment.
D: Risk response process is triggered when the risk level increases the risk tolerance level of the enterprise, and not when it just equates the risk tolerance level.
The trigger for the risk response process is the point at which the organization decides to take action to address a risk. This trigger is typically based on the risk level, which is the degree of uncertainty or potential harm associated with a particular threat.
Risk appetite refers to the amount of risk that an organization is willing to accept in pursuit of its objectives, while risk tolerance refers to the degree of risk that an organization is willing to accept before it takes action to address the risk.
Therefore, options A and B describe scenarios where the risk level increases above the risk appetite or risk tolerance, respectively. In these cases, the organization may decide to take action to address the increased risk.
Option C describes a scenario where the risk level equates the risk appetite, which means the organization is still within its acceptable level of risk and may not need to take any action.
Option D describes a scenario where the risk level equates the risk tolerance, which means the organization has reached its threshold for acceptable risk and must take action to address the risk.
Therefore, the correct answer to the question is either option A or B, depending on whether the organization is using risk appetite or risk tolerance as its trigger for risk response.