Financial Risk Manager Part 1
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Which of the following arguments best explains why some companies prefer siloed risk management to ERM?
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TTanishq
A
The silo approach simplifies the risk management process as each business unit works on a small 'slice' of the total risk exposure.
B
The silo approach promotes specialization, thus helps to develop a rich variety of risk management expertise within the organization.
C
The silo approach enables organizations to extensively analyze each risk without overlooking important aspects.
D
Managing risks in silos is more efficient and takes a shorter time compared to ERM.
Explanation:
Explanation
The correct answer is B because the silo approach to risk management allows individual business units within an organization to specialize in managing their specific risks. This specialization leads to the development of a diverse range of risk management expertise within the organization.
Key Points:
- Specialization: Each business unit can become highly skilled in managing its unique risks
- Diverse Expertise: Promotes development of rich variety of risk management skills across the organization
- Ownership and Accountability: Fosters culture where each unit takes responsibility for its own risks
- Thorough Analysis: Enables detailed focus on specific risk landscapes without distraction from broader organizational risks
While options A, C, and D may seem plausible, they don't capture the core advantage of specialization and expertise development that makes siloed risk management attractive to some companies compared to Enterprise Risk Management (ERM).
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