Skip to content

FRM Part I · FRM Exam Part I · Operational Risk

In an RCSA, a process has an inherent risk score of 20 (likelihood 4 x impact 5). Management rates the controls as reducing the risk by 60% of the inherent score. What is the residual risk score, and what does it represent?

The residual risk score is 8. Controls remove 60% of the inherent score of 20, leaving 40%, or 8. Residual risk is the exposure remaining after the effect of controls is taken into account, whereas inherent risk is the level before controls.

  1. A8, the risk remaining after considering the effectiveness of controlsCorrect
  2. B12, the risk remaining after considering the effectiveness of controls
  3. C8, the risk that exists before any controls are applied
  4. D20, the risk after controls but before management actions

Explanation

Residual risk = inherent risk x (1 - control effectiveness) = 20 x 0.40 = 8. Check: 20 - 0.6 x 20 = 8. Choosing 12 mistakes the 60% for the remaining portion. Inherent risk is the pre-control level, which is 20.

Did you get it right without looking?

One question tells you little. A timed set on Operational Risk shows your real accuracy, how long you take and where you lose marks.

Practise Operational RiskFree diagnostic mock

More Operational Risk questions