What does "Scenario Analysis" involve within the FAIR framework?

In the FAIR framework, "Scenario Analysis" is focused on evaluating hypothetical situations to understand potential risk exposures. This process involves systematically constructing scenarios that reflect potential events or situations that could lead to a loss. By examining these hypothetical scenarios, organizations can gain insights into their vulnerability to various risks and the potential impact those risks may have.

Scenario Analysis allows for a deeper understanding of the context in which risks can occur, including the specifics of how loss events might unfold. This enables organizations to identify key drivers of risk, assess the likelihood of those scenarios occurring, and analyze the potential financial implications. Effectively, it's a proactive approach to risk management that fosters better decision-making and prioritization of risk mitigation strategies.

Other aspects, such as evaluating past incidents or the effectiveness of controls, are important in risk management but are not the central focus of Scenario Analysis within the FAIR framework. Estimating the cost of unforeseen losses pertains more to the financial aspect of risk management rather than the exploratory and hypothetical nature of Scenario Analysis. Hence, the correct choice encapsulates the essence of how scenarios are utilized to forecast and prepare for potential risks rather than examining historical data or current controls.