The Main Purpose of Designing Risk Management Programs

A.

Risk cannot be removed completely from the enterprise; it can only be reduced to a level that an organization is willing to accept.

Risk management programs are hence designed to accomplish the task of reducing risks.

Incorrect Answers: B: Depending on the risk preference of an enterprise, it may or may not choose to pursue risk mitigation to the point at which benefit equals or exceeds the expense.

Hence this is not the primary objective of designing the risk management program.

C: Reducing risk to a level too small to measure is not practical and is often cost-prohibitive.

D: Reducing risks to a specific return ignores the qualitative aspects of the risk which should also be considered.

The main purpose of designing risk management programs is to minimize the impact of potential risks on an organization's objectives, assets, and operations. Risk management programs are designed to identify, assess, and prioritize risks, and to implement measures that reduce, avoid, transfer, or accept the risks.

Option A, "To reduce the risk to a level that the enterprise is willing to accept," is a commonly used approach in risk management. Organizations often have a risk appetite that determines the level of risk they are willing to tolerate. Risk management programs aim to identify and reduce risks to a level that is acceptable to the organization.

Option B, "To reduce the risk to the point at which the benefit exceeds the expense," is another important consideration in risk management. Organizations must weigh the costs of implementing risk management measures against the benefits of risk reduction. Risk management programs should aim to achieve a balance between risk reduction and cost-effectiveness.

Option C, "To reduce the risk to a level that is too small to be measurable," is not a practical goal in risk management. All risks can be measured, although some may be more difficult to quantify than others. Risk management programs should aim to identify and manage risks based on their likelihood and potential impact.

Option D, "To reduce the risk to a rate of return that equals the current cost of capital," is not a primary goal of risk management. The cost of capital is a financial metric used to evaluate the profitability of investments, and is not directly related to risk management.

In summary, the main purpose of designing risk management programs is to identify, assess, and manage risks to minimize their impact on an organization's objectives, assets, and operations. Risk management programs should aim to achieve a balance between risk reduction and cost-effectiveness, and to reduce risks to a level that is acceptable to the organization.