Objectives of a Risk Management Unit

[k.simpson]

I've been doing some practice questions on Risk Management, and I came across this one below. I couldn't see which one of the choices was least accurate at all. They all seemed to make sense, and fit in with the source text (Litterman).

Which of the following statements is least likely an objective of a risk management unit (RMU)?

A) Promoting a greater sense of risk awareness within the entity.

B) Report risk exposures to senior management in a timely and understandable manner.

C) Going beyond merely providing information by taking the initiative to research relevant risk topics.

D)
Providing the management team with information to better comprehend risk in individual portfolios as well as the source of performance

In the end, the answer turned out to be B, with the rationale that RMU should be independent of senior management and not to report to them. Now, I thought that Litterman meant "report" in an HR sense of the word, which I agree with. However, if the RMU doesn't help management to manage by providing info (i.e. by reporting it) then what is the point?

So is B really right? Anyone agree/disagree?

I'm always afraid of questions where the wording is ambiguous.

Thanks.

 

[ShaktiRathore]

Hi
Risk exposures are what goes in to assess the risk of a unit, it contains vital information which helps in determining the risk faced by unit quantitatively in a timely manner so that task is upto the unit level only to asses risk periodically and the central level might not play that much role in this , providing an outline information option D of the risk level of the unit if not timely or quarterly providing a brief overview of the risk faced by unit level rather than providing every exposure in a timely basis is more feasible for the unit.
your point if the RMU doesn't help management to manage by providing info (i.e. by reporting it) then what is the point? supports D more strongly than B, i think.
thanks

 

[k.simpson]

Hi ShaktiRathore, thanks as always for your quick response. I'm just making sure I understand you properly. You are saying then that the RMU is least likely to care about D - providing information to management?

I would have thought that D is still important, given the list of objectives in the Litterman text CH 17 (for reference). The very first objective, and the 8th objective in the list, to me speak directly to options B and D. Although for D maybe we could argue the difference between" providing information on how to do risk and performance attribution" (the question's wording) and "providing and testing tools for risk and performance attribution" (the source text's approximate wording).

I feel like it is a strangely worded question that probably would have more justice done in a free-form response than a MC question. Either way, it has forced to me to really think about what an RMU does!

Thanks again.

 

[ShaktiRathore]

Hi i am not saying D is not valid but that D seems more valid than option B so B is the incorrect option. Thus B is least likely an objective. You said that providing information is valid which is covered by D is one of the objective as you mentioned but doesn't the risk exposures wording sounds ambiguous so that we are not sure whether a detailed risk exposures or just report/information is provided to the central management thus this option seems to be more a faulty due to unclear wording nevertheless the other options really rules out each of them seems valid, so the faulty one B seems incorrect and thus the answer to the question.
thanks

 

[k.simpson]

Oh, ok... I get you now Exposures vs. data. The word "exposures" implying detailed information (which I don't agree with but maybe that is jargon I haven't picked up yet), whereas data is more generic...

I suppose I assumed that the caveat of "in a timely and understandable way" meant that the reporting was suitable to the audience of senior management (in both detail and speed), which removed the ambiguity in my mind.

Oh well, the writer of this question really had to dig deep, I think.

Thanks for your support