- Enterprise risk
a. Types of risk
b. Risk identification and assessment
c. Risk mitigation strategies
d. Managing risk
Part 2 – Section D.1. Enterprise risk
The candidate should be able to:
- a. identify and explain the different types of risk, including business risk, hazard risk, financial risk, operational risk, and strategic risk
- b. demonstrate an understanding of operational risk
- c. define legal risk, compliance risk, and political risk
- d. demonstrate an understanding of how volatility and time impact risk
- e. define the concept of capital adequacy (i.e., solvency, liquidity, reserves, and sufficient capital)
- f. explain the use of probabilities in determining exposure to risk and calculate expected loss given a set of probabilities
- g. define the concepts of unexpected loss and maximum possible loss (extreme or catastrophic loss)
- h. identify strategies for risk response (or treatment), including actions to avoid, retain, reduce (mitigate), transfer (share), and exploit (accept) risks
- i. define risk transfer (e.g., purchasing insurance, issuing debt)
- j. demonstrate an understanding of the concept of residual risk and distinguish it from inherent risk
- k. identify and explain the benefits of risk management
- l. identify and describe the key steps in the risk management process
- m. explain how attitude toward risk might affect the management of risk
- n. demonstrate a general understanding of the use of liability/hazard insurance to transfer risk (detailed knowledge not required)
- o. identify methods of managing operational risk
- p. identify and explain financial risk management methods
- q. identify and explain qualitative risk assessment tools including risk identification, risk ranking, and risk maps
- r. identify and explain quantitative risk assessment tools including cash flow at risk, earnings at risk, earnings distributions, and EPS distributions
- s. identify and explain Value at Risk (VaR) (calculations not required)
- t. define enterprise risk management (ERM), and identify and describe key objectives, components, and benefits of an ERM program
- u. identify event identification techniques and provide examples of event identification within the context of an ERM approach
- v. explain how ERM practices are integrated with corporate governance, risk analytics, portfolio management, performance management, and internal control practices
- w. evaluate scenarios and recommend risk mitigation strategies
- x. prepare a cost-benefit analysis and demonstrate an understanding of its uses in risk assessment and decision making
- y. demonstrate an understanding of the COSO Enterprise Risk Management— Integrated Framework