Exercise 1: Risk Identification and Assessment Prompt Engineering

Objective:

Learn to craft effective prompts for comprehensive risk identification and assessment across multiple risk categories.

Background:

Risk Officers are responsible for identifying, assessing, and monitoring risks that could impact the organization. A key challenge is developing a comprehensive view of risks across multiple domains and ensuring thorough assessment.

Exercise:

1. Scenario:

You need to conduct a comprehensive risk assessment for a new digital banking initiative that includes mobile payments, account opening, and loan application features.

2. Basic Prompt Example:

What are the risks of implementing a digital banking platform?

3. Prompt Improvement Activity:

  • Identify the limitations of the basic prompt
  • Add specific details about the digital banking initiative
  • Include context about your organization's risk framework
  • Request structured analysis across multiple risk categories
  • Ask for assessment methodology and criteria

4. Advanced Prompt Template:

I am a Risk Officer at a [size] financial institution conducting a comprehensive risk assessment for a new digital banking initiative with the following components:
- Mobile payment functionality (P2P, bill pay, mobile check deposit)
- Digital account opening with ID verification
- Online loan application and approval process
- Integration with our core banking system
- Third-party vendor partnerships for specific features

Our risk assessment framework includes these categories:
- Operational risk
- Technology risk
- Compliance/regulatory risk
- Strategic risk
- Credit risk
- Reputation risk
- Third-party risk

Please help me develop a comprehensive risk assessment by:

1. Identifying specific risks in each category for this digital banking initiative, considering:
   - Our regulatory environment (subject to [relevant regulations])
   - Customer demographics (primarily [describe customer base])
   - Competitive landscape (several competitors already offer similar services)
   - Our current technology infrastructure (describe key limitations)

2. For each identified risk:
   - Provide a clear risk statement
   - Suggest appropriate assessment criteria (likelihood, impact, velocity)
   - Identify potential risk triggers or scenarios
   - Recommend key risk indicators to monitor
   - Suggest potential controls or mitigations

3. Recommend a methodology for:
   - Prioritizing these risks
   - Quantifying impact where possible
   - Assessing control effectiveness
   - Determining residual risk levels
   - Establishing risk acceptance criteria

4. Suggest a structured approach for documenting and reporting these risks to:
   - Senior management
   - Board risk committee
   - Regulatory examiners

Format your response as a structured risk assessment framework that I can use to conduct a thorough analysis of our digital banking initiative.

5. Evaluation Criteria:

  • Does the prompt clearly describe the digital banking initiative?
  • Does it provide context about the organization's risk framework?
  • Does it request specific risks across multiple categories?
  • Does it ask for assessment methodology and documentation approach?

6. Practice Activity:

Create your own advanced prompt for risk identification and assessment related to:

  1. A new commercial lending product
  2. A cloud migration initiative
  3. A branch expansion into a new geographic market

Exercise 2: Risk Monitoring and Reporting Prompt Engineering

Objective:

Develop skills to craft prompts that help create effective risk monitoring frameworks and reporting dashboards.

Background:

Risk Officers must establish monitoring systems to track key risks and report changes to stakeholders. A key challenge is designing effective monitoring frameworks and creating clear, actionable risk reports.

Exercise:

1. Scenario:

You need to develop a risk monitoring framework and reporting dashboard for your institution's commercial real estate portfolio.

2. Basic Prompt Example:

What metrics should we track for commercial real estate risk?

3. Prompt Improvement Activity:

  • Identify the limitations of the basic prompt
  • Add details about your commercial real estate portfolio
  • Include context about current economic conditions
  • Request a structured monitoring framework with specific metrics
  • Ask for reporting dashboard design recommendations

4. Advanced Prompt Template:

I am a Risk Officer at a [size] financial institution developing a comprehensive risk monitoring framework and reporting dashboard for our commercial real estate (CRE) portfolio with these characteristics:
- Portfolio size: $[X] billion
- Property types: [list major segments and percentages]
- Geographic concentration: [list major markets and percentages]
- Current performance metrics: [delinquency rate, LTV ratios, etc.]
- Growth trajectory: [e.g., growing X% annually]

Current economic and market conditions:
- Interest rate environment: [describe current rates and trends]
- Regional economic indicators: [employment, growth in key markets]
- CRE market trends: [vacancy rates, cap rates, construction activity]
- Regulatory focus: [current regulatory concerns about CRE]

Stakeholder reporting requirements:
- Board Risk Committee: quarterly strategic overview
- Senior Management: monthly detailed review
- Lending teams: weekly performance metrics
- Regulators: quarterly concentration reports

Please help me develop a comprehensive CRE risk monitoring framework and reporting dashboard by:

1. Recommending key risk indicators (KRIs) to monitor, including:
   - Leading indicators that provide early warning signals
   - Lagging indicators that confirm risk materialization
   - External market indicators to track
   - Internal portfolio metrics to measure
   - Concentration metrics by property type, geography, borrower

2. For each recommended KRI:
   - Provide a clear definition and calculation methodology
   - Suggest appropriate thresholds or trigger levels
   - Recommend monitoring frequency
   - Explain its significance and what it indicates
   - Identify data sources required

3. Design a multi-level reporting approach with:
   - Executive dashboard components and layout
   - Drill-down capabilities and hierarchy
   - Visual representation recommendations (charts, heat maps, etc.)
   - Trend analysis presentation
   - Exception reporting methodology

4. Suggest a framework for:
   - Escalation procedures when thresholds are breached
   - Action planning based on monitoring results
   - Periodic review and refinement of the framework
   - Integration with stress testing and scenario analysis
   - Correlation analysis between different indicators

Format your response as a structured CRE risk monitoring framework and dashboard design that balances comprehensiveness with clarity and actionability.

5. Evaluation Criteria:

  • Does the prompt clearly describe the CRE portfolio and economic context?
  • Does it specify the different stakeholder reporting needs?
  • Does it request specific KRIs with definitions and thresholds?
  • Does it ask for dashboard design and escalation procedures?

6. Practice Activity:

Create your own advanced prompt for risk monitoring and reporting related to:

  1. Cybersecurity risk
  2. Liquidity risk
  3. Operational risk in a specific business line

Exercise 3: Risk Mitigation Strategy Prompt Engineering

Objective:

Learn to craft prompts that help develop effective risk mitigation strategies for identified risks.

Background:

Risk Officers must develop strategies to mitigate identified risks. A key challenge is designing effective, practical mitigation approaches that balance risk reduction with business objectives.

Exercise:

1. Scenario:

You've identified significant vendor concentration risk with a critical technology provider and need to develop a comprehensive mitigation strategy.

2. Basic Prompt Example:

How can we reduce vendor concentration risk?

3. Prompt Improvement Activity:

  • Identify the limitations of the basic prompt
  • Add specific details about the vendor relationship
  • Include context about your organization's constraints
  • Request a structured mitigation strategy with specific actions
  • Ask for implementation considerations and timeline

4. Advanced Prompt Template:

I am a Risk Officer at a [size] financial institution developing a comprehensive mitigation strategy for vendor concentration risk with a critical technology provider:

Vendor relationship details:
- Service provided: [core banking platform, payment processing, etc.]
- Relationship tenure: [X years]
- Contract terms: [renewal date, termination provisions]
- Criticality: [high/medium/low, % of operations impacted]
- Current risk assessment: [high concentration risk due to limited alternatives]
- Recent incidents: [any service disruptions, security issues, etc.]

Organizational constraints:
- Budget limitations: [available budget for mitigation]
- Technical capabilities: [internal expertise limitations]
- Regulatory requirements: [relevant vendor management regulations]
- Business continuity requirements: [RTO/RPO objectives]
- Change management capacity: [ability to implement significant changes]

Current mitigation measures:
- [List any existing controls or mitigation strategies]
- [Their effectiveness and limitations]

Please help me develop a comprehensive vendor concentration risk mitigation strategy by:

1. Recommending a structured approach to:
   - Assess the full scope and impact of the concentration risk
   - Quantify potential financial and operational impacts
   - Identify critical dependencies and single points of failure
   - Evaluate available alternatives in the marketplace
   - Determine optimal risk reduction targets

2. Suggesting specific mitigation tactics across these categories:
   - Contractual protections and SLA enhancements
   - Redundancy and backup solutions
   - Internal capability development
   - Alternative vendor identification and onboarding
   - Operational workarounds and manual processes
   - Insurance and financial protections

3. For each recommended tactic:
   - Provide implementation steps and requirements
   - Estimate effectiveness in reducing concentration risk
   - Identify potential challenges or limitations
   - Suggest success metrics and monitoring approach
   - Outline resource requirements and costs

4. Develop an implementation roadmap with:
   - Prioritization framework for mitigation actions
   - Short-term (0-6 months) action items
   - Medium-term (6-18 months) initiatives
   - Long-term (18+ months) strategic changes
   - Critical dependencies between actions
   - Key milestones and decision points

Format your response as a comprehensive vendor concentration risk mitigation strategy that balances risk reduction with practical implementation considerations.

5. Evaluation Criteria:

  • Does the prompt clearly describe the vendor relationship and risk context?
  • Does it specify organizational constraints and current measures?
  • Does it request specific mitigation tactics across multiple categories?
  • Does it ask for implementation steps, timelines, and success metrics?

6. Practice Activity:

Create your own advanced prompt for risk mitigation strategy development related to:

  1. Credit concentration in a specific industry
  2. Business continuity risk for a critical process
  3. Compliance risk with a new regulation