Chapter 8 Learning Outcomes Flashcards
8.1 Examine the nature of scenarios
Scenarios are described as models or stories outlining possible sequences of unexpected or adverse events. They are deemed severe but plausible, aiming to assess a firm’s exposure should such scenarios manifest. Scenarios, considered a forward-looking tool, typically include event types, risk categories, causes, potential impacts, and can be maintained in a library for reuse
8.2 Describe the benefits of scenario analysis
Scenario analysis fosters risk management awareness, embeds strong risk culture, identifies new strategic challenges, supports development of controls, informs risk appetite setting, feeds into capital planning, identifies insurance needs, and supports training outcomes
8.3 Explain internal and external factors affecting scenario analysis
The process is influenced by its purpose, participants, and the business environment. Clarity on the purpose, selection of knowledgeable participants, and awareness of the business environment’s impact on judgments are crucial for consistent and useful analysis outcomes
8.4 Describe approaches to analyzing scenarios
Approaches vary based on purpose and participant availability, including workshops, interviews, online questionnaires, Delphi method, research and verification, external data, and war games. Each approach has its own benefits and challenges, often chosen based on specific analysis objectives
8.5 Examine challenges in different approaches
Challenges include engaging the right people, managing participants’ creativity, ensuring common understanding, converting subjective measures into objective data, and obtaining regulatory acceptance. Addressing these challenges requires a well-organized and funded scenario analysis program
8.6 Describe elements in constructing scenarios
Scenario construction involves identifying areas to cover, constructing the scenario with a clear name, description, time horizon, impacts, and causal factors. Outputs require identifying the required data from participants, including frequency, likelihood, impact, and severity, with scenarios often documented and stored in a library for future use
8.7 Describe bias forms in scenario analysis
Bias can significantly influence scenario analysis outcomes, including anchoring bias, availability bias, and confirmation bias. Recognizing and mitigating these biases is crucial for ensuring the accuracy and reliability of scenario analysis
8.8 Explain methods for validating scenario analysis results
Validation involves comparing scenario analysis outcomes with historical data, expert opinions, and other operational risk tools to ensure scenarios are realistic and comprehensive. This process helps in refining scenarios for accuracy and relevance
8.9 Explain the relationship between scenarios and other operational risk tools
Scenarios are interconnected with other operational risk tools like RCSAs, KRIs, and loss event data. They complement each other by providing a comprehensive view of the firm’s risk exposure and informing risk management strategies
