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ARM 401 Exam – Questions & Solutions (100% Accurate)
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ARM 401 Exam – Questions & Solutions (100% Accurate)
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ARM 401 Exam – Questions & Solutions (100%Accurate)
What does the holistic approach to managing risk encompass? Right Ans -
Analysis and predictability of business processes and organizational decisions
What is the premise of holistic risk management? Right Ans - All business
decisions and operations carry some risk
What are the four quadrants of risk? Right Ans - Hazard risk, Operational
Risk, Strategic Risk, Financial Risk
What is today's conception of risk? Right Ans - The idea that taking risks is
fundamentally necessary for growth
Benefits of holistic risk management Right Ans - · Growth
· Analyzes risk variables and potential outcomes that increase the odds that
the result will be positive
· Help organizations better absorb losses
· Example: Gains in one area of the org can be used to offset losses in another
Benefits of a holistic approach to financial risk Right Ans - Uncover
inconsistencies in how a company manages loss retention
Predictive modeling Right Ans - Taking data and using software tools to
analyze, extrapolate, and predict outcomes
What device generate the data used in advanced analytics and predictive
modeling? Right Ans - The Internet of Things
Internet of Things Devices in use Right Ans - · Telematics in automobiles
· Sensors in buildings
· Drones
· Smartphones and tablets
· Heath trackers
· Robots
· High-definition cameras with sensors
,What protects data? Right Ans - Blockchain technology
Blockchain technology Right Ans - · Decentralized data-storage technology
and real-time ledger that contains a secure history of transactions
· Facilitates secure transactions without the need for a third party
What has a significant impact on risk management decision making? Right
Ans - Risk factors
What measurements do risk managers use in order to assess the interactions
between risk factors? Right Ans - Variance and covariance
Covariance Right Ans - · The measure of how two random risk variables
will change in relation to each other
· Used to calculate the correlation between the variables
Variance Right Ans - · Spread of the data set - how far apart the numbers
are in relation to the mean
What are correlation and covariance useful for? Right Ans - · Selecting
sources of risk for a financial portfolio
Why do risk professionals measure correlation and covariance? Right Ans -
· Identify and quantify relationships among various sources of risk
· Communicate the degree of uncertainty in a risk portfolio
· Prioritize investments in loss control
· Optimize financing for multiple sources of risk
· Evaluate the effectiveness of a risk management program
Monte Carlo simulation Right Ans - · Statistical computer model that
simulates the effects that various types of uncertainty may have on a process
· Computer randomly selects values for each variable and generates
thousands of possible scenarios. The results are assembled into probability
distributions representing possible outcomes
What does the Monte Carlo simulation uncover in terms of risk? Right Ans -
· May be able to uncover the effectiveness fo the risk management program
itself
,· Risk manager may be able to pinpoint strengths or weaknesses in risk
evaluation processes
Team approaches to identifying risk Right Ans - · Facilitated workshops
· Delphi technique
· Scenario analysis
· HAZOP (Hazard and operability study)
· SWOT (Strengths, weaknesses, opportunities, and threats)
Facilitated Workshops Right Ans - Neutral party (the facilitator) who has
no stake in the outcome or participation responsibilities, administers the risk
workshop and propels the group to achieve its goal
Delphi Technique Right Ans - · Uses the opinions of a select group of
experts to identify risks
· Submitting two rounds of queries to the selected experts. Each expert
responds to a question and the combined answers are presented to the group.
The same question is asked to the experts and asked to consider revising their
responses based on the results that were reported to the group. This is done
until a consensus is reached
Benefits of the Delphi Technique Right Ans - · Cost-effective
· The responses are anonymous which eliminates group bias
Disadvantage to the Delphi Technique Right Ans - Experts' opinions may be
limited to their current thinking on a subject
Scenario Analysis Right Ans - · Identifies risks and predicts the potential
consequences of those specific risks
· Can help identify a range of potential consequences and prioritize risks
Advantages to scenario analysis Right Ans - · Internal cross-functional team
to gain multidimensional view of risk's potential consequences
· Brings all concerns together so they can be addressed as a whole
Disadvantages to scenario analysis Right Ans - · The risk identification
process may be limited by the imagination and brainstorming capabilities of
the team selected
· Leads to overlooking key risks or consequences of risk
, HAZOP Right Ans - · Hazard and operability study - comprehensive review
of a process or system
· Team of subject matter experts and stakeholders identifies the risks
associated with a given process and recommends a solution
When is HAZOP studies used? Right Ans - When all risks must be
eliminated
Steps in HAZOP study Right Ans - 1. Subdivides the project or system
design into small components
2. Reviews each component to identify risks
3. Identifies the cause and potential outcomes for each risk
4. Develops a solution for each risk
5. Ensures that solutions work and reevaluates as necessary
SWOT Analysis Right Ans - strengths, weaknesses, opportunities, threats
What is SWOT analysis useful for? Right Ans - · Analyzing a new project or
product
· When there is a specific goal, such as determining whether engaging in a new
product or project is feasible
What environment are strengths and weaknesses in? Right Ans - Internal
environment
What environment are opportunities and threats in? Right Ans - External
environment
Examples of strengths Right Ans - · Technology
· Distribution channels
· Customer Loyalty
· Product quality
Examples of Weaknesses Right Ans - · High cost structure
· Absence of key skills
· Staff turnover
· Brand recognition
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