What is the main purpose of scenario analysis in operational risk management?

The main purpose of scenario analysis in operational risk management is to evaluate the potential consequences of hypothetical risk events. This analytical approach involves generating specific scenarios that could lead to operational risks, allowing organizations to understand how these risks could manifest and the impact they may have on operations, finances, and overall business strategy. By exploring various "what-if" situations, companies can anticipate potential losses and develop strategies to mitigate these risks effectively.

This type of analysis is crucial for developing a robust risk management framework. It helps organizations to identify vulnerabilities and prepare responses to possible adverse events, ensuring they are better equipped to handle operational disruptions. In contrast, options focused on profitability, employee performance, or creating benchmarks do not directly address the identification and evaluation of risks themselves; rather, they serve other purposes in the broader business context.