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

Which term refers to a formal process of assessing risks and their impact on a business?

1. Risk evaluation

2. Risk avoidance

3. Risk management

4. Risk tolerance

The correct answer is: Risk management

The term that refers to a formal process of assessing risks and their impact on a business is risk management. This process involves identifying, assessing, and prioritizing risks, followed by coordinated efforts to minimize, monitor, and control the probability and impact of unfortunate events. Risk management encompasses not only the assessment of risks but also the strategies that are developed to address those risks effectively, which can include planning for response and recovery measures. It is a comprehensive approach that helps organizations make informed decisions to protect their assets and ensure continuity in operations. In the context of the other terms, risk evaluation is a part of the overall risk management process but does not encompass the full scope, which includes implementation of responses. Risk avoidance refers specifically to actions taken to eliminate the risk entirely rather than assessing its impact. Risk tolerance is an organization's willingness to accept risk in pursuit of its objectives, but it does not involve the assessment process itself.