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Answer: Qualitative scenario analyses can be incorporated into a risk plan to identify factors that can cause aspects of the risk plan to fail.
## Explanation **Correct Answer: A** Qualitative scenario analyses are indeed valuable components of a risk plan. They help identify potential weaknesses and failure points in the risk management framework by exploring various hypothetical scenarios that could impact the organization. **Analysis of Other Options:** **B is incorrect** - A risk plan can and should incorporate the effects of the organization's key dependencies on volatility goals. Understanding how different business units, processes, or external factors interact is crucial for effective risk management. **C is incorrect** - Extreme events should absolutely be included in an organization's risk plan. While strategic plans focus on long-term objectives, risk plans specifically address potential adverse events, including extreme scenarios, to ensure the organization is prepared for worst-case situations. **D is incorrect** - A risk plan typically focuses on risk identification, measurement, and management rather than return on equity calculations. Return on equity estimates are more aligned with financial planning and performance measurement, not the core components of a risk plan. **Key Takeaway:** A comprehensive risk plan should include qualitative scenario analysis to identify potential failure points and strengthen the overall risk management framework.
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A group of risk managers in a newly established asset management firm is assigned to implement the risk management process that includes three fundamental dimensions: risk planning, risk budgeting and risk monitoring. The managers start by discussing the components of and the guidelines included in the risk plan. Which of the following statements is correct?
A
Qualitative scenario analyses can be incorporated into a risk plan to identify factors that can cause aspects of the risk plan to fail.
B
A risk plan can set volatility goals but cannot incorporate the effects of the organization's key dependencies on these goals.
C
Extreme events should not be included in an organization's risk plan but they should be included in its strategic plan.
D
A risk plan should include an estimate of return on equity found by using the return on risk capital for each allocation taken independently.