The accurate assessment of operational risk is a major challenge for organisations. Often historical data on probability and impact is limited and even when available there is no guarantee that historical trends will repeat themselves.

Particularly problematic are low probability, high impact ‘tail’ events, where data is often nonexistent. Likewise, dynamic organisational environments, where there are high levels of internal or external change (e.g. political, technological or social change), further reduce the value of tracking historical tends.

Scenario analysis, and the related tools of stress and reverse stress testing, have emerged as common responses to the problems of limited data and unreliable trends. When done effectively, these tools can shed light on uncertainty and help organisations to prepare for and pro-actively respond to operational risk events.