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FRM Part II · FRM Exam Part II · Risk Measurement and Assessment

A bank runs a scenario analysis workshop for a severe but plausible cyber-attack on its core banking platform. Which approach best reflects good practice in conducting the workshop?

Good practice brings together business, technology and risk experts, uses internal and external loss data as reference points, documents assumptions and challenges estimates to reduce bias. Relying on internal history or one person's estimate misses tail events and increases cognitive bias.

  1. AUse only the bank's own historical internal losses so the estimates are objective and no bias arises
  2. BHave the business head alone provide a single point estimate to avoid disagreement among participants
  3. CBring together business, technology and risk experts, use internal and external loss data as reference points, document assumptions, and challenge estimates to reduce biasCorrect
  4. DLimit the scenario to events that have happened at the bank before so that inputs are verifiable

Explanation

Good scenario analysis uses diverse experts, structured inputs including external data, documented assumptions and independent challenge to limit biases such as anchoring and availability. Relying only on internal history misses tail events, and a single estimate from one person is not robust.

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