CRA Risk Identification & Assessment Techniques 3 — Questions and Answers
Question 1: A company uses historical loss data to estimate future risk exposures. Which quantitative technique does this best describe?
- Scenario analysis
- Actuarial analysis (Correct answer)
- Sensitivity analysis
- Decision tree analysis
Correct answer: Actuarial analysis
Actuarial analysis uses historical loss data and statistical models to estimate the frequency and severity of future risk events, common in insurance and financial risk.
Question 2: In risk assessment, 'velocity' refers to:
- The financial magnitude of a risk event
- How quickly a risk can impact the organization after it materializes (Correct answer)
- The number of risks identified in a given period
- The speed of implementing risk controls
Correct answer: How quickly a risk can impact the organization after it materializes
Velocity measures how rapidly a risk transitions from occurrence to impact, helping prioritize risks that leave little time for response.
Question 3: Which diagram maps out all possible causes of a risk event in a fishbone or Ishikawa structure?
- Risk register
- Cause-and-effect diagram (Correct answer)
- Influence diagram
- Risk breakdown structure
Correct answer: Cause-and-effect diagram
A cause-and-effect (Ishikawa/fishbone) diagram visually maps potential root causes contributing to a risk event across categories like people, process, and technology.
Question 4: FMEA (Failure Mode and Effects Analysis) calculates a Risk Priority Number (RPN) by multiplying which three factors?
- Probability, Impact, and Velocity
- Severity, Occurrence, and Detection (Correct answer)
- Likelihood, Consequence, and Controllability
- Frequency, Exposure, and Vulnerability
Correct answer: Severity, Occurrence, and Detection
FMEA's RPN = Severity × Occurrence × Detection, where higher scores indicate failure modes requiring priority corrective action.
Question 5: A risk analyst maps risks along their entire value chain from raw materials to end customer. This approach is called:
- Bow-tie analysis
- Value chain risk analysis (Correct answer)
- SWOT analysis
- Monte Carlo simulation
Correct answer: Value chain risk analysis
Value chain risk analysis identifies risks at each stage of the production and delivery process, exposing interdependencies and single points of failure.
Question 6: Which risk identification source is most useful for identifying emerging risks that haven't yet materialized in historical data?
- Internal audit reports
- Industry benchmarks
- Horizon scanning and environmental monitoring (Correct answer)
- Prior incident logs
Correct answer: Horizon scanning and environmental monitoring
Horizon scanning monitors trends, weak signals, and external environments to detect emerging risks before they appear in historical loss data.
Question 7: In a risk bow-tie diagram, the 'knot' in the center represents:
- The risk appetite threshold
- The critical risk event or hazard (Correct answer)
- The residual risk after controls
- The risk owner assignment
Correct answer: The critical risk event or hazard
The center knot of a bow-tie diagram represents the critical risk event, with threats and causes on the left and consequences on the right.
CRA Risk Identification & Assessment Techniques 3
A company uses historical loss data to estimate future risk exposures.
Which quantitative technique does this best describe?