Chapter 6

Question 1

Front: What are the two main types of operational risk indicator?

Answer 1

Back: Risk indicators and control indicators

Question 2

Front: What do risk indicators provide information about?

Answer 2

Back: Changes in operational risk exposure levels over time

Question 3

Front: What do control indicators provide information about?

Answer 3

Back: Whether controls are working as intended

Question 4

Front: Name three desirable features of indicators

Answer 4

Back: Relevant, measurable, predictive/leading

Question 5

Front: What does a threshold breach indicate?

Answer 5

Back: A risk exposure or control effectiveness issue exists

Question 6

Front: How can risk indicators support operational risk management?

Answer 6

Back: Identification, assessments, risk appetite, governance

Question 7

Front: What is a key challenge with indicators?

Answer 7

Back: Finding accurate, predictive ones

Question 8

Front: How should changes to indicators be governed?

Answer 8

Back: Documented procedures for add/change/removal

Question 9

Front: How do indicators link to risk appetite?

Answer 9

Back: Limits and thresholds assigned express appetite

Question 10

Front: What does frequency of monitoring depend on?

Answer 10

Back: Risk type and intended audience

Question 11

Front: Name two reporting levels for indicators

Answer 11

Back: Governing body, business line management

Question 12

Front: What causes the averaging problem in aggregation?

Answer 12

Back: Extreme values averaged out

Question 13

Front: Give one benefit of daily indicator monitoring

Answer 13

Back: Track day-to-day business issues

Question 14

Front: Give one drawback of yearly monitoring

Answer 14

Back: Lack of urgency/chance to respond

Question 15

Front: What are the two types of risk indicator by timescale?

Answer 15

Back: Leading, lagging

Question 16

Front: What do lagging indicators rely on?

Answer 16

Back: Historical data

Question 17

Front: What do leading indicators provide?

Answer 17

Back: Early warnings of future changes

Question 18

Front: What are the two types of report by objectivity?

Answer 18

Back: Objective, judgement-based

Question 19

Front: What causes misleading indicator reporting?

Answer 19

Back: Poor selection and governance

Question 20

Front: What dictates frequency of risk reporting?

Answer 20

Back: Intended audience and risk type

Question 21

Front: What does additional commentary help explain when values aggregated?

Answer 21

Back: Extreme outlier values/variances

Question 22

Front: What suggests greater organizational risk appetite?

Answer 22

Back: Less conservative indicator thresholds

Question 23

Front: What do amber and red thresholds represent?

Answer 23

Back: Different response urgency levels

Question 24

Front: What does a key risk indicator mean?

Answer 24

Back: An indicator for a significant risk

Question 25

Front: What does effective indicator use require?

Answer 25

Back: Judgement alongside quantitative data

Question 26

Front: What helps address subjectivity in thresholds?

Answer 26

Back: External benchmarks

Question 27

Front: What suggests an indicator threshold may be set too low?

Answer 27

Back: Frequent breach prompts little action

Question 28

Front: Why should risk indicators change over time?

Answer 28

Back: Ensure usefulness maintained