Associate PRM key terms

A firm-wide framework that identifies, assesses, and manages all material risks across business units, treating risk as a portfolio rather than a set of isolated silos.

The amount and type of risk an organization is willing to accept in pursuit of its strategic objectives, expressed in qualitative statements and quantitative limits.

The acceptable degree of variation from a stated risk appetite for a specific risk category, often expressed as a numerical threshold or limit.

The maximum risk an organization can absorb before its financial, operational, or reputational viability is threatened, independent of what it chooses to accept.

A formal document articulating the firm's appetite for risk by category, with measurable boundaries, escalation triggers, and clear ownership assigned to accountable executives.

A governance model in which business units own and manage risk, an independent risk function oversees it, and internal audit provides assurance to the board.

The shared values, attitudes, and behaviors within an organization that determine how people identify, discuss, and act on risk in daily decisions.

The signals senior leadership sends through words and actions about the importance of ethics, controls, and prudent risk-taking throughout the organization.

The structures, roles, policies, and reporting lines that allocate authority and accountability for risk decisions, typically spanning the board, committees, and executive management.

A board or management committee responsible for overseeing the risk profile, approving risk appetite, and challenging risk-taking and mitigation decisions.

A structured log recording identified risks, their causes, likelihood, impact, owners, controls, and status, used to track and prioritize risk treatment.

The process of evaluating the likelihood and impact of identified risks, considering existing controls, to determine their significance and priority for action.

The level of risk that exists before any controls or mitigation measures are applied, reflecting the raw exposure of an activity or process.

The risk remaining after existing controls and mitigation measures have been applied, which must be compared against tolerance to decide whether further action is needed.

A visual grid plotting risks by likelihood and impact, often color-coded, to help management prioritize exposures and communicate the risk profile.

A metric tracked over time that provides early warning of rising risk exposure, with defined thresholds that trigger escalation or corrective action.

A structured exercise in which business units evaluate their own processes, identify risks, and judge whether existing controls are adequate and effective.

The potential loss arising when a borrower or counterparty fails to meet contractual obligations, such as repaying principal and interest on time.

The estimated likelihood that an obligor will fail to meet its obligations within a defined horizon, usually one year, expressed as a percentage.

The estimated outstanding amount owed by a borrower at the moment of default, including drawn balances and expected drawdowns on committed facilities.

The share of exposure expected to be lost if a default occurs, after accounting for recoveries from collateral, guarantees, and workout proceeds.

An assessment of an obligor's or instrument's creditworthiness, produced internally or by an external agency, often mapped to a defined scale of default likelihood.

Assets pledged by a borrower to secure a loan, which the lender may seize and sell to recover losses if the borrower defaults.

The danger of excessive exposure to a single counterparty, sector, product, or region, so that one adverse event can cause disproportionately large losses.

The potential loss from movements in market prices, including interest rates, foreign exchange rates, equity prices, and commodity prices affecting positions.

A statistical estimate of the maximum loss a portfolio could suffer over a given horizon at a specified confidence level under normal market conditions.

The average loss expected in the worst tail of outcomes beyond the VaR threshold, giving a more complete view of extreme downside risk.

A technique that applies severe but plausible scenarios to a portfolio or institution to estimate losses and capital needs under adverse conditions.

Comparing model-generated risk estimates, such as VaR, with actual realized outcomes to test whether the model's assumptions and calibration remain reliable.

The exposure of earnings or economic value to changes in interest rates, including repricing mismatches, yield curve shifts, and basis risk.

A measure of a fixed-income instrument's price sensitivity to interest rate changes, approximating the percentage price change for a one percent rate shift.

The risk that a firm cannot meet cash or collateral obligations as they fall due, or cannot unwind positions quickly without significant price concessions.

The risk of loss from inadequate or failed internal processes, people, systems, or external events, including fraud, errors, and legal and compliance failures.

The potential for adverse consequences from decisions based on incorrect or misused model outputs, arising from flawed assumptions, data, or implementation.

Preparedness arrangements, including backup systems and recovery procedures, that enable critical operations to continue or resume after a disruptive event.

A policy, procedure, or mechanism designed to prevent, detect, or reduce the impact of a risk, such as segregation of duties or approval limits.

Actions taken to reduce the likelihood or impact of a risk, including transferring it through insurance or hedging, avoiding it, or accepting it deliberately.

Taking an offsetting position or instrument, such as a derivative, intended to reduce exposure to an adverse price, rate, or credit movement.

The regular communication of risk exposures, limit utilization, incidents, and emerging issues to management and the board in a clear, decision-useful format.

A quantitative boundary on risk-taking, such as a maximum exposure or stop-loss level, whose breach requires escalation and corrective action.

A formal statement of the professional standards and behaviors expected of employees, covering integrity, objectivity, confidentiality, competence, and conflicts of interest.

Situations where personal, financial, or organizational interests could improperly influence professional judgment, requiring disclosure, avoidance, or managed separation.

The legal and ethical obligation to act in the best interests of clients or beneficiaries, placing their interests ahead of one's own.