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Answer: Controls are structured in a way that every layer of controls would have to fail in order for an operational loss to occur.
## Explanation The Swiss cheese model is a risk management concept that visualizes multiple layers of controls (like slices of Swiss cheese) with holes (weaknesses) that can align to allow risks to pass through. The key characteristics of this model are: - **Multiple layers of controls**: The model employs several independent control layers - **Defense in depth**: A failure in one control layer doesn't necessarily lead to an operational loss - **Independent failures**: For an operational loss to occur, multiple control layers must fail simultaneously **Why Option B is correct**: - In the Swiss cheese model, controls are structured so that every layer would need to fail for an operational loss to occur - This creates redundancy and reduces the likelihood of complete system failure - The model assumes that the holes (weaknesses) in different control layers are unlikely to align perfectly **Why Option A is incorrect**: - The Swiss cheese model is designed so that a single control failure does NOT directly result in an operational loss - The model provides defense in depth through multiple control layers **Why Option C is incorrect**: - In the Swiss cheese model, control failures are typically assumed to be independent events - The probability of failure in one control layer should not depend on failures in other layers - This independence is what makes the model effective - the likelihood of multiple independent failures aligning is low The Swiss cheese model is widely used in operational risk management because it emphasizes the importance of having multiple, independent control layers that collectively provide robust protection against operational losses.
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An operational risk manager is presenting to a group of representatives from financial institutions about the advantages and disadvantages of different approaches that firms use to manage operational risk. The manager provides an example of a financial institution that uses the Swiss cheese model as a control structure to manage the risk of operational losses due to incorrect transaction processing. Which of the following correctly describes an expected impact of the firm's use of the Swiss cheese model?
A
Controls are structured in a way that a failure of a single key control would directly result in an operational loss.
B
Controls are structured in a way that every layer of controls would have to fail in order for an operational loss to occur.
C
When using this model, the probability of each subsequent control failure is dependent.