FRM Part II · FRM Exam Part II · Risk Identification
A bank's operational risk team is preparing for a scenario workshop on a possible prolonged outage of its payments platform. Which step is most appropriate at the start of the scenario analysis process?
The right starting point is to define the scenario's scope and assumptions and gather knowledgeable participants from business and risk functions. Scenario analysis is forward-looking and expert-driven, so predetermining the result or relying only on historical internal data would undermine its purpose.
- ASelect the capital figure the workshop should reach, then adjust the assumptions to fit it
- BDefine the scenario's scope and assumptions, and choose knowledgeable participants such as business experts and risk staffCorrect
- CRun the workshop using only internal loss data from the past three years
- DAsk the internal audit function to estimate loss severity alone
Explanation
Scenario analysis begins by defining the scenario and its scope and assembling informed participants from the business and risk functions. Fixing the outcome first defeats the purpose. Relying only on past internal data ignores the forward-looking nature of scenarios. A single function cannot capture the full range of expertise needed.
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