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

A bank's operational risk team asks each business line manager to evaluate, in a facilitated workshop, the likelihood and impact of potential loss events and the effectiveness of existing controls, producing a heat map for the unit. Which operational risk management tool is being used?

The tool is a risk and control self-assessment. Business managers evaluate the likelihood and impact of risks and the effectiveness of controls, typically summarizing results in a heat map. It differs from KRIs, which are monitored metrics, and from scenario analysis, which focuses on severe tail events.

  1. ARisk and control self-assessment (RCSA)Correct
  2. BBacktesting of a loss distribution approach model
  3. CScenario analysis based on external loss data only
  4. DKey risk indicator threshold calibration

Explanation

An RCSA has business owners assess inherent risks, control effectiveness and residual risk, often summarized in a heat map. Scenario analysis targets severe, low-frequency events, and KRIs are monitored metrics rather than workshop assessments. Backtesting is a model validation exercise.

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