FRM Part II · FRM Exam Part II · Risk Identification
A bank's RCSA scores likelihood and impact on a 1-5 scale and multiplies them to give an inherent score. A control is rated as reducing the likelihood score by 2 points and leaving impact unchanged. For a risk with inherent likelihood 4 and impact 5, what is the residual score under this approach, and the reduction from the inherent score?
The residual score is 10, a reduction of 10 from the inherent 20. Inherent is 4 times 5, which is 20. The control lowers likelihood from 4 to 2, so residual is 2 times 5, which is 10. The reduction is therefore 10 points.
- AResidual 10; reduction of 10Correct
- BResidual 18; reduction of 2
- CResidual 15; reduction of 5
- DResidual 10; reduction of 20
Explanation
Inherent score = 4 x 5 = 20. The control reduces likelihood to 2, so residual = 2 x 5 = 10. The reduction is 20 - 10 = 10. Subtracting 2 directly from the product gives 18, which is wrong because the reduction applies to likelihood before multiplying.
Did you get it right without looking?
One question tells you little. A timed set on Risk Identification shows your real accuracy, how long you take and where you lose marks.
More Risk Identification questions
- A bank runs scenario workshops and finds that participants anchor on the first loss estimate offered by a senior executive, and that estimat…
- A bank is about to migrate its payments platform to a new vendor system. Which approach best reflects sound operational risk identification …
- During an RCSA workshop, a trading operations manager rates the residual risk of trade settlement failures as 'low' because 'the reconciliat…
- A risk manager is combining internal loss data with scenario-based estimates to model severity for a rare event category. Internal data cont…
- In an RCSA, a bank distinguishes between a top-down and a bottom-up approach. Which statement correctly describes the bottom-up approach?
- A bank's risk function combines internal loss data with scenario-based loss estimates. For a cyber-extortion event, internal data shows no l…