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

A bank uses a 1-5 scale for both likelihood and impact in its RCSA and defines the inherent risk score as likelihood multiplied by impact. A process has likelihood 4 and impact 5. Controls are judged to reduce the score by 60%. What is the residual score?

The residual score is 8. The inherent score is 4 times 5, which is 20, and controls reduce it by 60 percent, leaving 40 percent of 20. Using a 40 percent reduction would wrongly give 12, and 20 ignores controls.

  1. A8Correct
  2. B12
  3. C20
  4. D9

Explanation

Inherent score = 4 x 5 = 20. A 60% reduction leaves 40% of 20 = 8. Subtracting 60% of the scale or giving 12 (a 40% reduction) are mistakes; 20 is the unmitigated score.

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