Chapter 8 Flashcards
What is scenario analysis in operational risk management?
Scenario analysis is a tool used to identify and assess the potential impact of operational risk events that could significantly affect an organization.
Why is scenario analysis important?
It helps in preparing for and mitigating the effects of unexpected operational risk events.
What are the key components of scenario analysis?
Key components include event identification, assessment of likelihood and impact, and development of mitigation strategies.
How does scenario analysis contribute to operational risk management?
It contributes by providing insights into potential vulnerabilities and enabling proactive risk management.
What is the role of management in scenario analysis?
Management’s role is to ensure scenarios are realistic, relevant, and aligned with the organization’s risk appetite.
How are scenarios identified for analysis?
Scenarios are identified through a combination of historical data analysis, expert judgment, and brainstorming sessions.
What distinguishes scenario analysis from other risk assessment tools?
Scenario analysis specifically focuses on extreme but plausible events that are not easily quantified by other tools.
How is the likelihood of a scenario assessed?
The likelihood is assessed based on historical data, industry trends, and expert judgment.
How is the impact of a scenario measured?
Impact is measured in terms of financial loss, reputational damage, operational disruption, and other relevant metrics.
What role does scenario analysis play in risk appetite setting?
It helps define the boundaries of acceptable risk by identifying extreme risks and their potential impacts.
How often should scenario analysis be conducted?
Regularly, to ensure scenarios remain relevant and reflective of the current risk landscape.
What is the relationship between scenario analysis and stress testing?
Scenario analysis can inform stress testing by providing scenarios for testing the resilience of the organization under extreme conditions.
How do external factors influence scenario analysis?
External factors such as economic, political, and environmental changes can introduce new risks or alter the likelihood and impact of existing scenarios.
How is scenario analysis integrated into the overall operational risk framework?
It is integrated by using its findings to inform risk assessments, controls, and mitigation strategies across the organization.
What are the challenges in implementing scenario analysis?
Challenges include identifying relevant scenarios, quantifying impacts, and integrating findings into strategic decision-making.
