CRA Risk Mitigation Strategies & Decision-Making 3

Question 1

A utility company uses scenario analysis to evaluate outcomes under a 'severe drought' scenario. The PRIMARY distinction between scenario analysis and sensitivity analysis is:

Accepted Answer

Scenario analysis evaluates coherent combinations of variables; sensitivity analysis isolates individual variables

Answer

Scenario analysis constructs internally consistent narratives where multiple variables shift together, whereas sensitivity analysis isolates the impact of changing one variable while holding others constant.

Question 2

A risk manager must choose between two loss-control options: Option A reduces frequency by 40%; Option B reduces severity by 40%. With many high-frequency, low-severity events, which option generally provides more value?

Accepted Answer

Option A, because reducing many small events lowers total expected loss more efficiently

Answer

When losses are high-frequency and low-severity, reducing frequency cuts the large number of events and typically lowers aggregate expected loss more than reducing individual event size.

Question 3

In a risk matrix, a threat assessed as 'high likelihood, low impact' should PRIMARILY be addressed with:

Accepted Answer

Risk reduction controls, to lower the frequency of occurrence

Answer

High-frequency, low-impact risks are prime candidates for reduction controls that address root causes, lowering the rate of occurrence to an acceptable level.

Question 4

When applying the precautionary principle in risk decision-making, an organization should:

Accepted Answer

Take preventive action even when full causal evidence is lacking, if consequences could be severe

Answer

The precautionary principle mandates protective action under uncertainty when potential harm is serious or irreversible, even without conclusive scientific proof.

Question 5

A chief risk officer presents a risk report to the board showing that 80% of the firm's VaR comes from 3 of 50 risk factors. This finding BEST supports a decision to:

Accepted Answer

Concentrate mitigation resources on the dominant 3 risk factors

Answer

Pareto analysis reveals that a small number of risk factors drive most exposure, directing limited mitigation resources to where they will have the greatest impact.

(CRA) Certified Risk Analyst Practice Test

(CRA) Certified Risk Analyst Practice Test

CRA Risk Mitigation Strategies & Decision-Making 3