CORES Key Risk Indicator Development 3

Question 1

Which statistical technique is commonly used to determine whether a KRI threshold is set at an appropriate level relative to historical loss data?

Accepted Answer

Regression analysis linking KRI values to loss events

Answer

Regression analysis can reveal whether KRI movements statistically precede or correlate with loss events, validating the threshold's predictive relevance.

Question 2

A KRI for third-party vendor risk measures 'percentage of vendors past contract review date.' What type of KRI is this?

Accepted Answer

Process / Control KRI

Answer

This is a process or control KRI because it measures adherence to a required risk management activity rather than an exposure level or loss outcome.

Question 3

What is the PRIMARY purpose of normalizing KRI data before aggregating it into an enterprise risk score?

Accepted Answer

To enable comparison and combination of metrics measured in different units or scales

Answer

Normalization converts disparate metrics (counts, percentages, dollar amounts) onto a common scale so they can be meaningfully aggregated without distortion.

Question 4

Which scenario represents a 'false positive' problem in KRI design?

Accepted Answer

A KRI repeatedly triggers red alerts but no actual losses follow

Answer

False positives occur when the KRI signals danger too often without corresponding losses, eroding management confidence and leading to alert fatigue.

Question 5

In operational risk management, a 'leading' KRI for people risk would MOST likely measure which of the following?

Accepted Answer

Employee engagement score and voluntary turnover rate trend

Answer

Engagement and turnover trends are predictive of future conduct incidents and operational errors, making them leading indicators of people risk.

(CORES) Certified Operational Risk Executive Specialist Practice Test

(CORES) Certified Operational Risk Executive Specialist Practice Test

CORES Key Risk Indicator Development 3