Assignment 4 Case 4.1 Case 4.1 High Stakes in Oil: Containing the Blowups Before They Happen
- Anthony Peccia
- Sep 24
- 1 min read
This case teaches you how to
Map controls to exposures
Apply scorecards to create the residual risk profile from the inherent risk profile and
Design corrective action plans to contain the residual risk within the Risk Appetite by
reducing the inherent risk, such as putting caps on volume or targeting a market segment, and
improving the adequacy of controls
When reviewing the inherent risks in oil trading, I noticed that strong control design does not always result in strong control performance in real operations. This shows that controls are only effective if they are actively enforced and continuously tested, not just documented. It also suggests that in some situations, reducing the level of exposure itself may be a more reliable way to manage risk than relying on controls alone.
Our team hit a crossroad when we reached the part where we need to aggregate the control adequacies into one value. We came up with a list, and we are hoping for some feedback about validity of approach or how it is done in practice:
1: Mode: most common control adequacy.
2: Average: For example L+H = M.
3: Weakest Link: If lowest control adequacy is L, then the total is also L.
4: Up to us, as long as justification is reasonable.
There are also two different levels we could apply controls to calculate residual risk:
1: The control adequacy is for the overall risk.
2: The control adequacy is first applied to frequency and severity individually. The new…
I came across a point in Exhibit 1 that I’d appreciate some clarification on. In the table, "Suitability & Disclosure" is listed as having an Inherent Risk of High, while in the heat map it is placed in the Very High (red) zone. I also noticed a similar mismatch for "Damage to Assets".
For Part 2 and Part 3, should we:
Use the table values as the official ratings for intrinsic risk, or
Use the heat map placement (frequency × severity) as the more accurate source?
This makes the result different for the residual risk calculations and whether the exposure ends up inside or outside appetite. Could you confirm which source we should follow? Thank you