Chapter 6 MCQs

Question 1

What is an operational risk indicator defined as being?
a) A metric that provides information on operational risk exposure changes over time
b) A metric that provides information on control effectiveness
c) Both a metric on risk exposure changes and control effectiveness
d) None of the above

Answer 1

c

Question 2

How many main types of operational risk indicator are outlined in the document?
a) Two
b) Three
c) Four
d) Five

Answer 2

b

Question 3

Which of the following is NOT outlined as a type of operational risk indicator?
a) Performance indicator
b) Risk indicator
c) Mitigation indicator
d) Control indicator

Answer 3

c

Question 4

What must be avoided when using risk or control indicators?
a) Context and interpretation
b) Detailed analysis
c) Over-reliance as fully accurate
d) Regular revie

Answer 4

c

Question 5

What must firms do to ensure good governance around selection of risk indicators?
a) Conduct regular internal audit
b) Document procedures and changes
c) Seek external benchmarks
d) Compare against peer firms

Answer 5

b

Question 6

Which factor should NOT have a key influence when deciding the number of risk indicators to monitor?
a) The costs involved of data collection
b) Management’s ability to interpret the results
c) The inability of staff to multi-task
d) The nature of identified key risks

Answer 6

c

Question 7

What does an indicator typically NOT provide information on according to the document?
a) The likelihood of an operational risk event
b) The potential impacts involved
c) The response options available
d) The level of control effectiveness

Answer 7

c

Question 8

Why should fewer risk indicators generally be selected for senior management reporting versus local management reporting?
a) To ensure consistent messaging across the organization
b) To permit detailed investigation where required
c) To facilitate overall understanding
d) To allow for benchmark comparisons

Answer 8

c

Question 9

Why does the document state that poor performing indicators can do more harm than good?
a) Because they result in excessive management meetings
b) Because they require too great an audit burden
c) Because they provide misleading information
d) Because they signal declining shareholder returns

Answer 9

c

Question 10

What feature should operational risk indicators ideally have according to the document?
a) Monthly tracking ability
b) Predictive capability
c) Single owner attribution
d) Peer group comparability

Answer 10

b

Question 11

Why does the document state that some indicators may only correlate with, and not cause, operational losses?
a) Because operational losses have multiple root causes
b) Because the collected data lacks sufficient detail
c) Because indicators rely partially on expert judgement
d) Because operational losses themselves are hard to predict

Answer 11

a

Question 12

What does the document say historical indicator trends can help provide?
a) Identification of process improvement initiatives
b) Evidence of control failings needing addressed
c) Modelling of potential future loss levels
d) Demonstration of management control

Answer 12

c

Question 13

What does the document recommend to address the risk of ‘averaging’ problems when aggregating and reporting indicator results?
a) Greater use of exception-based reporting
b) Increasing the threshold levels assigned
c) Providing additional explanatory commentary
d) Focusing only on the most extreme outliers

Answer 13

c

Question 14

Which type of risk indicator relies only on data about events that have already happened?
a) Predictive
b) Lagging
c) Leading
d) Directionally-based

Answer 14

b

Question 15

What does the document recommend to help address subjectivity in expert judgements used to help set indicator thresholds?
a) Peer review by other internal experts
b) Use of external benchmarks wherever available
c) Back-testing against previous internal loss data
d) Annual reassessment as part of business planning

Answer 15

b

Question 16

What does a risk indicator threshold breach indicate has happened?
a) A significant increase in operational risk exposure
b) A need to review business continuity arrangements
c) That operational risk limits have been exceeded
d) That an internal control has failed

Answer 16

a

Question 17

According to the document, what should govern the frequency of operational risk indicator reporting?
a) The availability of management to review the reports
b) The nature of the risks and intended audience
c) The costs involved in producing the reports
d) Regulatory reporting timescales

Answer 17

b

Question 18

Which type of risk indicator report relies purely on quantitative data presentation?
a) Qualitative
b) Judgemental
c) Objective
d) Commentary-based

Answer 18

c

Question 19

What does the document recommend is documented in relation to changing indicator thresholds?
a) The justification for any changes
b) The future audit plans
c) The regulatory reporting implications
d) The likely impacts on risk exposure

Answer 19

a

Question 20

How should action plans relating to indicator threshold breaches be monitored according to the document?
a) Monthly updates to the board
b) Inclusion in regulatory reporting
c) Ongoing following implementation
d) External audit sign-off

Answer 20

c

Question 21

What does the document state is the closest link between risk indicators and risk appetite?
a) They determine risk capacity across units
b) They set the target risk levels to achieve
c) The thresholds and limits assigned
d) The number of indicators requiring monitoring

Answer 21

c

Question 22

Which feature does the document state is essential for an indicator but challenging to establish?
a) Relevance to the risk or control
b) Predictive capabilities
c) Easy monitoring
d) Auditable sourcing

Answer 22

b

Question 23

Why does the document suggest risk indicators should change over time?
a) To permit effective benchmarking
b) To link to new products and services
c) To incorporate regulatory changes
d) To ensure usefulness is maintained

Answer 23

d

Question 24

What does the document suggest is monitored to provide an indicative measure of the severity of health and safety incidents?
a) Near miss reporting levels
b) Days lost due to incidents
c) First aid cases frequency
d) Costs of medical treatment

Answer 24

b

Question 25

Which feature does the document suggest indicators should have to support effective decision making?
a) Comparability via benchmarks
b) Presentation incorporating visual aids
c) Monthly frequency of reporting
d) Ownership by business management

Answer 25

b

Question 26

Which area does the document suggest may provide helpful input when initially selecting risk indicators?
a) Risk and control assessments
b) Historic operational loss event data
c) External industry standards
d) Thematic control questionnaires

Answer 26

a

Question 27

What does the document suggest increases the challenge associated with effectively using risk indicators?
a) Designing management reports
b) Lack of relevance to risks
c) Finding accurate predictive ones
d) Setting review requirements

Answer 27

c

Question 28

What does the document suggest is an essential element in operational risk reporting?
a) Data integrity assertions
b) Loss event statistical significance
c) Exception-based narrative
d) Access to underlying data

Answer 28

d

Question 29

How frequently does the document suggest daily risk indicator monitoring would be most applicable?
a) When aligning with financial accounting
b) For indicators underpinning high risk exposures
c) For frequently occurring business activities
d) To facilitate annual trend analysis

Answer 29

c

Question 30

What does the document indicate is the closest equivalent term sometimes used to mean key risk indicator?
a) Priority risk indicator
b) Material risk indicator
c) Significant risk indicator
d) Principal risk indicator

Answer 30

c