FRM Part I · FRM Exam Part I · Operational Risk
A bank's operational risk function wants a tool that traces the stages of a payments process to find where errors, delays or control gaps could arise. Which tool is best suited to this purpose?
Process mapping is the best fit. It documents each step of a process such as payments so that points of potential failure, delay or missing controls can be identified. The other options are statistical tail methods, model validation or credit tools, not process-level risk identification.
- AProcess mappingCorrect
- BExtreme value theory
- CBack-testing of VaR
- DCredit scoring
Explanation
Process mapping lays out each step of a process, making it possible to see where failures and weak controls might occur. Extreme value theory and VaR back-testing are quantitative tail and model-validation tools, and credit scoring addresses borrower default risk.
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