What is the expected outcome of effective scenario analysis in ORM?

Effective scenario analysis in Operational Risk Management (ORM) aims to provide a comprehensive understanding of potential risks and their impacts on an organization. By engaging in scenario analysis, teams can assess various hypothetical situations that may lead to operational failures or losses. This process helps in identifying vulnerabilities and developing a clearer picture of risk exposures.

Enhanced understanding of risk exposure allows organizations to prioritize risks based on their potential impact and likelihood, enabling better allocation of resources and strategic planning. It fosters a proactive approach toward risk management, encouraging the organization to develop mitigative strategies before risks turn into actual events. This is crucial for improving risk governance and ultimately leads to a more resilient and informed decision-making framework.

In contrast to enhanced understanding, options such as lower operational costs, a decrease in employee risk awareness, and reduction of technological infrastructure are not direct outcomes of effective scenario analysis. While effective risk management may contribute to lower costs in the long run or require adjustments to infrastructure, these aspects are not the primary focus or expected outcome of scenario analysis. Instead, the core benefit lies in its ability to illuminate and detail potential risks, allowing organizations to be better prepared and strategically aligned.