Certified Professional in Health Care Risk Management (CPHRM) Practice Exam

The term that best describes the degree of variability in investment returns that an organization is willing to withstand is risk tolerance. Risk tolerance refers to the specific level of risk that an organization or an individual is comfortable taking on in pursuit of their financial goals. It reflects their ability to endure potential losses in investment returns and the types of investments they may pursue, directly influencing investment strategy and decision-making.

In the context of health care risk management, understanding risk tolerance is essential. It helps organizations determine how much risk they can accept without jeopardizing their financial stability or operational effectiveness. This concept also informs policies and procedures related to investment strategies, funding models, and overall risk management practices.

Other terms are relevant but do not encapsulate the essence of variability in investment returns in the same way. Risk retention implies a decision to bear certain risks internally rather than transferring them, while risk transfer involves shifting the risk to another party, such as through insurance. Root cause analysis is a methodology used to identify the underlying causes of a problem but does not pertain to financial variability or investment strategies.