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FRM Part II · FRM Exam Part II · Risk Measurement and Assessment

During an RCSA workshop, a risk manager uses a 5x5 matrix where likelihood and impact are each scored 1 to 5 and the risk score is their product. A process risk has inherent likelihood 4 and impact 5. Controls are assessed to reduce likelihood by 2 points and leave impact unchanged. What is the residual score, and what is the percentage reduction from inherent?

The residual score is 10, a 50% reduction. Inherent score is 4 times 5, which is 20. After controls cut likelihood from 4 to 2 with impact unchanged at 5, residual is 2 times 5, or 10, which is half of the inherent score.

  1. A10, a reduction of 50%Correct
  2. B10, a reduction of 20%
  3. C12, a reduction of 40%
  4. D15, a reduction of 25%

Explanation

Inherent score = 4 x 5 = 20. Residual likelihood = 2, impact 5, so residual = 10. Reduction = (20-10)/20 = 50%. Subtracting 2 from the product instead gives 18, and other options use wrong arithmetic.

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