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FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience

A bank's operational risk function asks each business unit to assess its own key processes, rate the likelihood and impact of potential failures, and evaluate the strength of existing controls in a structured workshop. Which operational risk tool is being used?

The tool is risk and control self-assessment. Business units themselves identify risks in their processes, rate likelihood, impact and control strength, usually in workshops. This differs from loss data collection, which records past events, and from scenario analysis, which targets severe but plausible events.

  1. ARisk and control self-assessment (RCSA)Correct
  2. BLoss data collection
  3. CScenario analysis based on external experts
  4. DBack-testing of a VaR model

Explanation

RCSA is a forward-looking, management-owned process in which units identify risks and rate likelihood, impact and control effectiveness. Loss data collection is backward-looking and records actual events. Scenario analysis focuses on severe but plausible events, usually with expert input, not routine process-level control ratings.

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