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FRM Part II · FRM Exam Part II · Risk Reporting

A bank's risk report shows a key risk indicator, the percentage of failed payment transactions, with green status because the current month is 0.9% against an amber threshold of 1.0%. The prior five months were 0.3%, 0.4%, 0.5%, 0.7%, 0.8%. What is the most important improvement to the report's design?

The report should show the trend alongside the threshold. The indicator has risen steadily from 0.3% to 0.9% and is nearly at amber, so a green status alone hides the deterioration. Trend information supports early intervention, while loosening thresholds or showing only colours weakens the early-warning function.

  1. ARemove the thresholds because they give false assurance
  2. BDisplay the trend over time alongside the threshold so the deterioration toward amber is visibleCorrect
  3. CReport only the status colour to keep the page simple
  4. DChange the threshold to 1.5% so the indicator stays green

Explanation

The indicator has risen every month and is close to the threshold, so a point-in-time green status hides a deteriorating pattern. Showing the trend enables early action. Raising the threshold to avoid amber defeats the early-warning purpose, and showing only colour removes information.

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