Scenario Assessment Flashcards
(19 cards)
what is scenario assessment?
method used to evaluate the impact of potential risk events on an organization. involves creating detailed scenarios to understand how different risk events could affect the business
what are the stages of the severity assessment?
- conversion of non-financial impacts to financial terms
- consideration of the risk event post-mitigation
- link the impact of the risk event to business drivers
- leverage loss data to peers or external databases
- adjustment of the data collected to suit the size of the business
why is scenario assessment important?
- enhances preparedness for unexpected events
- provides insights into potential impacts and responses
- supports strategic planning and decision making
- helps calculating regulatory capital requirements
what are the stages of the scenario assessment?
- preparation and governance
- scenario generation and selection
- scenario assessment
- validation and review
- incorporation into risk management and planning
- scenario aggregation and reporting
what is the frequency assessment?
evaluates the probability of each scenario occurring in the next year
what are the stages of the frequency assessment?
- one-year horizon (assessing the likelihood of scenarios over the next year)
- attributing probabilities to rare events (difficult)
- use of external data
- alignment with RCSA
what is the Delphi method?
structured communication technique or method, originally developed as a systematic, interactive forecasting method that relies on a panel of experts
What is the selection criteria once scenarios have been generated?
- prioritizing scenarios based on their relevance and impact that can be assessed in detail
- consolidation of similar scenarios
what are the steps of Delphi method?
- silent collection (of assessments/estimates)
- Disclosure of estimates
- optional reassessment from participants
- Final estimate calculation
what is the fault tree analysis?
breaks down scenarios into conditions that must occur for a disaster
what are the elements of the scenario assessment?
- impact assessment
- likelihood assessment
- documentation and analysis
how is fault tree analysis applied in the financial services?
assesses the likelihood for certain events and successive failures which could lead to significant disasters
what are bayesian models?
update likelihood assessments based on new information or expert opinions, using conditional probabilities to refine estimations
what are the different elements of validation and review?
- expert review
- stakeholder engagement
- regular updates
why are standard templates needed for scenario documentation and validation?
ensures consistency and helps with comparison and ensures all necessary items are covered
how can scenario assessment be incorporated into management?
- can be involved strategic planning
- can be involved into the overall risk management framework
- training sessions can be conducted to raise awareness about the scenarios and their implications
what are the benefits of scenario assessment?
- enhanced preparedness
- informed decision- making
- regulatory compliance
- improved risk-management
- continuous improvement
how should scenario analysis be handled by management?
- there should be a focus on response and mitigation
- the scenarios should be grouped by consequence
- breaches in the firms risk appetite should be identified
- the firm should have preparedness for unlikely scenarios
