Risk and Insurance Management Society (RIMS) Certified Risk Management Professional (CRMP) Practice Exam

When measuring the financial effectiveness of an organization's risk management plan, what should the risk management professional determine?

1. Overall cost of risk

2. Exclude risk financing costs

3. Involve the risk management committee

4. Determine maximum allowable uncertainty

The correct answer is: Overall cost of risk

Determining the overall cost of risk is crucial when measuring the financial effectiveness of an organization's risk management plan. This comprehensive evaluation includes all costs associated with risk, including the expense of risk control measures, risk financing, and any losses that may not be covered by insurance. By quantifying these elements, a risk management professional can assess whether the current risk management strategies align with the organization's financial objectives and risk tolerance. Understanding the overall cost of risk allows organizations to identify areas where risk management efforts can be improved or adjusted. This can enable the organization to allocate resources more effectively, enhance risk mitigation strategies, and ultimately reduce the total cost impact that risks have on the organization’s financial performance.