Kapitel 1

Question 1

What is the difference between normative and descriptive decision theory?

Answer 1

Normative decision theory focuses on how decisions should be made, while descriptive decision theory explains how decisions are actually made. Normative decision theory proposes different decision rules that take into account different risk attitudes, while descriptive decision theory observes and analyzes the actual decision-making processes.

Question 2

What are the components of a decision situation in formal decision theory?

Answer 2

Components of a decision situation in formal decision theory:

-Alternatives (available actions)
-Environmental states (mutually exclusive combinations of influencing factors)
-Outcomes (results of chosen actions and environmental states)
-Objective function (used to evaluate and select the best alternative)

Normative decision theory assumptions:
-Rational decision maker
-Complete information

Question 3

What are some decision rules suggested by normative decision theory?

Answer 3

Normative decision theory proposes several decision rules:

1. Maximin rule: Choose the alternative with the best outcome among the worst outcomes. Suitable for pessimistic decision-makers.
2. Maximax rule: Select the alternative with the best outcome among all alternatives. Suitable for optimistic decision-makers.
3. Hurwicz principle: Combine maximin and maximax rules using an optimism index. Choose the alternative with the highest weighted sum.
4. Savage-Niehans rule: Compare regrets for each environmental state. Select the alternative with the lowest highest regret.
5. Bernoulli principle: Use a utility function to assign values to outcomes. Choose the alternative with the highest expected utility.
6. µ-σ principle: Consider expected value and standard deviation. Use a preference function to select the alternative with the highest preference value.

These rules can be applied in uncertain situations without requiring probabilities.

Question 4

How can the concept of risk attitude be defined based on the (μ;σ) principle?

Answer 4

Risk attitude is determined by the (μ;σ) principle:

-Risk neutral: Indifferent to risk, focuses on expected results (μ).
-Risk-averse: Prefers lower risk alternatives.
-Risk seeking: Prefers higher risk alternatives for potential higher gains.

Question 5

How is risk defined?

Answer 5

Risk is defined as a potential adverse deviation of an actual result from its target.

Question 6

What are examples of risks?

Answer 6

Examples of risks:
-Actual revenues in the current fiscal year lower than the revenue target
-Actual costs next year higher than next year’s cost target
-Expectation of a fall in profits this year, which might actually be higher

Question 7

How is risk understood in this definition?

Answer 7

Risk definition: Adverse deviations are considered as risk, while favorable deviations are seen as opportunities.

Question 8

Does the broader definition of risk also include favorable deviations?

Answer 8

In a broader definition, the term risk includes both adverse and favorable deviations (upside and downside risks). However, this definition is not used here.

Question 9

What happens when the potential deviation becomes a reality?

Answer 9

When the potential deviation becomes a reality, the risk or opportunity materializes.

Question 10

What is the goal of risk management?

Answer 10

Goal of risk management: Direct and control all risk-related activities of a company, not eliminate risk entirely.

Question 11

Why do companies implement initiatives despite the presence of risk?

Answer 11

Companies implement initiatives, even though they involve risk, because they aim to realize opportunities and make strategic advancements.

Question 12

What is the ultimate objective of risk management?

Answer 12

The ultimate goal of risk management is to influence and monitor the risk situation of a company, with the aim of ensuring its success and survival.

Question 13

Who is responsible for risk management within a company?

Answer 13

Senior management is typically responsible for risk management, and it is an integral part of the company’s auditing process.

Question 14

What is risk appetite?

Answer 14

Risk appetite refers to the extent and type of risks that a company is willing to engage in or accept. It is influenced by the company’s risk attitude.

Question 15

What is risk culture?

Answer 15

Risk culture is a component of the overall corporate culture and refers to the values, beliefs, knowledge, attitudes, and understanding about risk shared by a group of people within an organization, particularly its employees.

Question 16

What are the three important elements of risk culture?

Answer 16

According to Vanini, risk culture has three elements:
1. Fundamental employee assumptions related to risk.
2. Values and standards as criteria for employees.
3. Artifacts, observable elements of risk culture.

Question 17

Why might companies come to different decisions for the same alternative when weighing risks against opportunities?

Answer 17

Companies may come to different decisions because each company has its own idea of the optimal risk-return profile, influenced by its risk appetite. The different risk cultures and risk attitudes within companies contribute to these variations in decision-making.

Question 18

How should the objectives of risk management align with company objectives?

Answer 18

The objectives of risk management should be aligned with the broader objectives of the company, ensuring that risk management activities support and contribute to the achievement of company goals.

Question 19

What is the purpose of the KonTraG (Gesetz zur Kontrolle und Transparenz im Unternehmensbereich)?

Answer 19

The purpose of KonTraG is to enhance control and transparency in the corporate sector by amending the stock corporation act and commercial code.

Question 20

What does §91 Abs. 2 AktG state?

Answer 20

§91 Abs. 2 AktG states that the executive board of a company is required to take appropriate measures, including implementing a surveillance system, to detect early developments that could endanger the survival of the company.

Question 21

What are the obligations of the executive board under the KonTraG?

Answer 21

As part of their general organizational obligations, the executive board is obligated to establish a surveillance system and an early warning system as part of a risk management system. Failure to fulfill these obligations may result in liability for damages.

Question 22

What does “appropriate” mean in the context of implementing a surveillance system?

Answer 22

The concept of “appropriate” depends on the specific circumstances of the company, such as its business model, size, industry, and extent of international links. It is relative to the individual characteristics and needs of the company.

Question 23

Can you provide examples of developments that could endanger the survival of a company?

Answer 23

Examples of endangering developments include risky transactions, incorrect accounting and reporting, as well as violations of the law that have an impact on the company’s assets, financial situation, and financial results.

Question 24

Which types of companies were directly affected by the rules initiated by the KonTraG?

Answer 24

The rules initiated by the KonTraG, such as §91 Abs. 2 AktG, are directly relevant to Aktiengesellschaften (stock corporations) only. However, spill-over effects were assumed for the management of other legal forms of companies, such as the GmbH (limited liability company).

Question 25

What does §1 Abs. 1 StaRUG introduce?

Answer 25

As of January 1, 2021, §1 Abs. 1 StaRUG introduces a comparable and explicit responsibility for the management of all legal entities (juristische Personen). It requires constant monitoring of developments that may endanger the survival of the legal entity.

Question 26

What actions are required by the members of senior management under §1 Abs. 1 StaRUG?

Answer 26

Under §1 Abs. 1 StaRUG, the members of senior management must constantly monitor developments that may endanger the survival of the company. If such developments are identified, they are required to take suitable countermeasures and immediately report to the supervisory bodies responsible for overseeing the management.

Question 27

How does §1 Abs. 1 StaRUG differ from §91 Abs. 2 AktG?

Answer 27

Unlike §91 Abs. 2 AktG, §1 Abs. 1 StaRUG explicitly requires a response to relevant developments in the form of suitable countermeasures. It places a specific obligation on the management to take action when necessary.

Question 28

What specific regulations apply to banks in Germany?

Answer 28

Banks in Germany are subject to additional regulations, such as the Kreditwesengesetz (KWG), which is the banking act.

Question 29

What are MaRisk and what do they focus on?

Answer 29

MaRisk stands for Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement) and is issued by BaFin (Bundesanstalt für Finanzdienstleitungsaufsicht). It provides further details on the implementation of §25a KWG. One focus of MaRisk is to ensure that a bank’s material risks are adequately covered by its risk coverage potential.

Question 30

What is the significance of capital adequacy in bank regulation?

Answer 30

Capital adequacy, or having appropriate own funds (angemessene Eigenmittel), is a key aspect of bank regulation. It originates from the Basel Committee on Banking Supervision, and its requirements have been implemented in the EU through directives.

Question 31

What is the role of the Committee of Sponsoring Organizations of the Treadway Commission (COSO)?

Answer 31

COSO provides frameworks and guidance on internal control, enterprise risk management, and fraud deterrence in companies and other organizations.

Question 32

What are the components of COSO’s risk management framework?

Answer 32

COSO’s risk management framework consists of five components: 1) Governance and culture, 2) Strategy and objective-setting, 3) Performance, 4) Review & revision, and 5) Information, communication, and reporting.

Question 33

What is the focus of COSO’s risk management framework?

Answer 33

COSO emphasizes the importance of risk management in strategic management and for company performance.

Question 34

What does ISO 31000 provide?

Answer 34

ISO 31000 provides principles, a framework, and a process for managing risk. It serves as a recognized benchmark that companies and organizations can use to compare their risk management practices. The standard is not highly detailed.

Question 35

What is ISO 31000?

Answer 35

ISO 31000 is a standard on risk management published by the International Organization for Standardization (ISO).