Society For Human Resource Management (SHRM) Certified Professional Practice Exam

What would indicate that a business is effectively managing its risks?

1. High employee turnover rates

2. Consistent financial losses

3. A clear action plan is in place

4. Frequent organizational changes

The correct answer is: A clear action plan is in place

A clear action plan in place demonstrates that a business is effectively managing its risks because it indicates proactive planning and preparedness to address potential issues before they escalate. Risk management involves identifying, evaluating, and prioritizing risks, followed by coordinated efforts to minimize, control, or eliminate the impact of unfavorable events. A well-defined action plan serves as a roadmap for the organization, detailing the steps to be taken in response to various risk scenarios. This ensures that the business can navigate uncertainties more effectively and sustain its operations. In contrast, high employee turnover rates, consistent financial losses, and frequent organizational changes may all suggest underlying issues or challenges the business is facing, rather than effective risk management. These could indicate instability, dissatisfaction, or a lack of strategic direction within the organization.