Which of the following parameters are considered for the selection of risk indicators? Each correct answer represents a part of the solution.
Choose three.
Click on the arrows to vote for the correct answer
A. B. C. D.ABD.
Risk indicators are placed at control points within the enterprise and are used to collect data.
These collected data are used to measure the risk levels at that point.
They also track events or incidents that may indicate a potentially harmful situation.
Risk indicators can be in form of logs, alarms and reports.
Risk indicators are selected depending on a number of parameters in the internal and external environment, such as: -> Size and complexity of the enterprise -> Type of market in which the enterprise operates -> Strategy focus of the enterprise Incorrect Answers: C: Risk appetite and risk tolerance are considered when applying various risk responses.
Risk indicators are key metrics that help organizations to monitor and measure potential risks. When selecting risk indicators, organizations should consider several factors that are relevant to their specific business environment. The following are the parameters that are considered for the selection of risk indicators:
A. Size and complexity of the enterprise: The size and complexity of an enterprise play a significant role in the selection of risk indicators. Larger and more complex organizations tend to have more risks, so they may need more comprehensive and sophisticated indicators to monitor their risks effectively. For example, a global financial institution may need to track several risk indicators related to regulatory compliance, credit risk, market risk, operational risk, and reputational risk.
B. Type of market in which the enterprise operates: The type of market in which the enterprise operates is another important factor to consider when selecting risk indicators. Different markets have different risk profiles, and organizations should choose indicators that are relevant to their specific market. For example, a pharmaceutical company operating in a highly regulated market may need to monitor risk indicators related to product safety, regulatory compliance, and intellectual property protection.
C. Risk appetite and risk tolerance: Risk appetite refers to the level of risk that an organization is willing to accept in pursuit of its strategic objectives. Risk tolerance refers to the level of risk that an organization is willing to tolerate before taking corrective action. Organizations should select risk indicators that align with their risk appetite and risk tolerance levels. For example, a high-risk tolerance organization may be comfortable with higher levels of credit risk, while a low-risk tolerance organization may require more conservative credit risk indicators.
D. Strategy focus of the enterprise: The strategy focus of the enterprise also plays a role in selecting risk indicators. Organizations should choose indicators that align with their strategic objectives and goals. For example, a company that is focused on expanding into new markets may need to monitor risk indicators related to political instability, currency fluctuations, and supply chain disruptions.
In summary, organizations should consider several factors when selecting risk indicators, including the size and complexity of the enterprise, the type of market in which the enterprise operates, the risk appetite and risk tolerance, and the strategy focus of the enterprise. By selecting relevant risk indicators, organizations can effectively monitor their risks and take appropriate action to mitigate potential threats to their business.