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FRM Part II · FRM Exam Part II · Case Study: Third-party Risk Management

A bank monitors a critical vendor using key risk indicators. Which set would best provide forward-looking early warning of deteriorating vendor resilience?

Rising incident frequency, overdue remediation of findings, vendor staff turnover and negative financial-health signals form the best early-warning set because they predict deteriorating resilience. Invoice counts, contract value and onboarding volumes measure activity rather than vendor health.

  1. ANumber of invoices paid last quarter and vendor logo changes
  2. BRising incident frequency, overdue remediation findings, staff turnover at the vendor and negative financial-health signalsCorrect
  3. CTotal contract value and length of relationship
  4. DCount of vendors onboarded in the year

Explanation

Effective KRIs are predictive of weakening resilience: more incidents, overdue audit remediation, key staff attrition and financial stress all signal rising failure likelihood. Invoice counts, contract value and onboarding volume describe activity, not vendor health, and give no early warning.

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