Question 1

A problem with risk management at large firms is that it is often:&#10;A)Completely ignored&#10;B)Siloed&#10;C)Too frequent&#10;D)Too aggressive&#10;E)All of the above

Accepted Answer

Risk management at large firms is often siloed, meaning that separate groups have their own risk management approach and don't talk to one another.
Some of the recent financial crisis was caused by this. Firms had different groups loaded with exposure to declines certain assets. To each of the individual groups, the risk was manageable, but aggregated across the firm, it resulted in huge losses.
Key takeaway: The best companies apply enterprise risk management, a coordinated approach to risk management across the organization.

Question 2

Jerry was in the midst of assessing his risk for a project at a well-known real estate firm when the stock market collapsed, sending shockwaves throughout his company and his project. The market crashing can be classified as what type of risk:

A)Foreseeable
B)Internal
C)Technical
D)External
E)Unimaginable

External

Accepted Answer

Factors affecting the stock market would be considered external risk factors to this and most other companies.
Key Takeaway: Firms cannot possibly prepare for all unforeseen risks. However, external risk must always be considered, especially ones that might affect future cash flows.

Question 3

Which of the following could be an example of hedging? Select all that apply:&#10;A)Buying oil futures&#10;B)Hiring a strategy consultant&#10;C)Protecting against fluctuating exchange rates&#10;D)Changing back-office processors&#10;E)Playing two hands of blackjack at once

Accepted Answer

Protecting against fluctuating exchange rates and buying oil futures could be hedging against business risk. This is a potential strategy to mitigate risk a business continuity planner can recommend.
Key Takeaway: Hedging is important to smoothing earnings and ensuring consistent cash flow. For instance, Southwest Airlines has protected itself by purchasing contracting for jet fuel at a set price to protect against fluctuating prices.

Question 4

Ted is negotiating a 10-year contract with the U.S. government to provide educational services. The government wants a fixed price project. However, Ted is extremely concerned about the possibility of inflation given the increase in government spending. Ted should suggest what time of contract?

A)Cost plus fee
B)Cost plus fixed fee
C)Cost plus incentive fee
D)Time and material
E)Fixed price with economic price adjustment

Accepted Answer

A fixed price with economic price adjustment contract allows for fees to be adjusted based on an established index (usually of inflation).
Key Takeaway: Vendors signing multi-year contracts are crazy not to include this. Even if inflation or cost increases don't appear to be on the horizon, it is an unnecessary risk to be exposed to. In general, this is an accepted practice to protect project profits. A good business continuity planner can help protect his or her firm against inflation by insisting on this type of provision.

Question 5

Reducing inventory levels reduces risk.

Accepted Answer

Carrying inventory is risky. It results in less cash liquidity and can also decrease in value (in some rare cases, it may also appreciate in value).
Key Takeaway: Better inventory management is a common solution to what ails many companies. It improves their risk profile and frees up cash. However, reducing inventory is easier said than done. Two examples of techniques are to accelerate manufacturing times (reducing work-in-progress) and improve forecasting.

Question 6

According to the DRI Professional Practices, what are the 3 criteria to be used to identify alternative facility and offsite requirements?&#10;A)Facilities&#10;B)Cost&#10;C)Communicatons&#10;D)Personnel&#10;E)Utilities

Accepted Answer

Facilities, communications and utilities are the three criteria for identifying alternative facility and offsite requirements.
Key Takeaway: This is a somewhat tricky question, but the professional practices are focused on the characteristics of the physical site at this point in the process.

Question 7

What are some ways to manage manufacturing site risk?&#10;A)Utilize distributed processing&#10;B)Third party manufacturers&#10;C)Alternate source of product&#10;D)Multiple suppliers&#10;E)Upgrade facilities

Accepted Answer

Distributed processing, use of third party manufacturers, having an alternate product source and improving facilities are all way to manage site risk.
Key Takeaway: Each of these comes with a cost, so the key is analyzing which approaches will be cost-effective.

Deck 3: Business continuity plan (BCP) Strategy