What is the MAIN purpose of designing risk management programs?
A.
To reduce the risk to a level that the enterprise is willing to accept
B.
To reduce the risk to the point at which the benefit exceeds the expense
C.
To reduce the risk to a level that is too small to be measurable
D.
To reduce the risk to a rate of return that equals the current cost of capital
Explanation:
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.
Answer B is incorrect. 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.
Answer C is incorrect. Reducing risk to a level too small to measure is not practical and is often
cost-prohibitive.
Answer D is incorrect. Reducing risks to a specific return ignores the qualitative aspects of the risk
which should also be considered.