CHAPTER 3: PROJECT RISK MANAGEMENT

1.Question: In your project, you are creating a diagram that describes the decision under consideration
and implications of choosing one or another of the available alternatives. This will help in:
1. Getting a Qualitative Analysis of the risk
2. Determining which risks can impact the project the most
3. Translating the uncertainties at a detailed level into potential impact on objectives expressed at the
level of the total project
4. Determining which decision yields the greatest expected value

2.Question: As a project manager, you are concerned with determining which risks might impact the
project - this is done as part of:
1. Risk Management Planning
2. Risk Identification
3. Qualitative Risk Analysis
4. Risk Response Planning
3.Question: In your project, you have identifed important risks, and planned appropriate responses to the
risks. Some risks e.g. possibility of natural disasters has been documented and accepted in your risk
management plan. If there are risks that remain after you have taken these steps, then such risks are
called:
1. Unidentifiable Risks
2. Residual Risks
3. Secondary Risks
4. Accepted Risks

4.Question: Workarounds differ from contingency plans in that:

1. Contingency plans are planned in advance and workarounds are not planned for in advance.
2. Workarounds are planned in advance and contingency plans are not planned for in advance.
3. Contingency plans also include force-majeur events e.g. natural calamities
4. Both contingency plan and workaround are the same

5.Question: You are the project manager of a project which would do oil-exploration in the ocean. Since
you cannot plan for all eventualities, you establish a contingency reserve, including amounts of time,
money or resources to handle known or unknown risks. This is an example of :
1. Risk Avoidance
2. Risk Transfer
3. Active Risk Acceptance
4. Improper risk planning since all risks should be identified and accounted for.

6.Question: Please refer to this Decision Tree which shows the analysis of profit/loss for the two
alternatives (i.e. to build or buy).
What is the opportunity cost if the project manager decides to build instead of buy
1. - $ 1,500
2. $ 3,500
3. $ 1,500
4. $ 5,000

7.Question: As part of Risk Management process, you just created an overall risk ranking of the project,
created list of prioritized risks, identified which risks need additional analysis and determined trends in risk
analysis results. What should you do next?
1. Analyze the effect of risk events and assign a numerical rating to those risks
2. Create a list of identified risks
3. Determine the fundamental conditions or events that may give rise to identified risk (root causes of risk)
4. Note down the list of potential responses to the risks

8.Question: In your project, there is:

* 25% probability for $ 25,000 profit

* 50% probability for $ 40,000 profit
* 25% probability for $ 100,000 profit

What is the Expected profit in your project?

1. $ 40,000
2. $ 50,000
3. $ 51,250
4. $ 53,750

9.Question: Project risk management includes all the processes concerned with conducting risk
management planning, identification, analysis, responses, and monitoring and control on a project. In this
context, all the following statements about risk are accurate EXCEPT:
1. Risk is an uncertain event or condition
2. Risks have to be identified and properly managed
3. Risk Management should be done throughout the project
4. Risk has only negative impact on the project objective
10.Question: You are in the process of developing options, and determining actions to enhance
opportunities and reduce threats to the project`s objectives. What should you be doing next?
1. Determining which risks might affect the project and documenting their characteristics
2. Identifying, analyzing and planning for newly arising risks
3. Deciding how to approach and conduct risk management activities for the project
4. Assessing the priority of identified risks using their probability of occuring

11.Question: In your project, you are in the risk monitoring and controlling process. So, you are always in
the lookout for indications that a risk has occured or is about to occur. These indications can also be
referred to as:
1. Triggers
2. Warning signs
3. Risk symptoms
4. All of the above

12.Question: You are in the process of creating a risk management plan for your project - this plan will
describe how risk management will be structured and performed on the project. Your risk management
plan may include:
1. Avoided, Transferred, Mitigated and Accepted Risks
2. Risk Response Audits, Earned Value Analysis, Technical Performance Measurement
3. Risks, Triggers, Inputs to other processes
4. Budgeting, Timing, Risk Categories
13.Question: In your project, you can use all the following Tools and Techniques for Risk Response
Planning EXCEPT:
1. Strategies for negative risks or threats
2. Contingent response planning
3. Strategy for threat and opportunities
4. Strategy for residual risks
14.Question: You have a geographically dispersed team, from whom you would like to get expert opinion
about your project. Which information gathering technique should you use:
1. Brainstorming
2. Delphi Technique
3. SWOT Analysis
4. Checklists

15.Question: Graphical representations of situations showing causal influences, time ordering of events,
and other relationships among variables and outcomes is also referred to as :
1. Cause-and-effect diagrams
2. System flow charts
3. Influence diagrams
4. None of the above

16.Question: You are in the build phase of the project. But it has run into several unanticipated problems.
Several risks have surfaced which you had not anticipated earlier. The project is over-budget and behind
schedule. What should you do?
1. Create updates to risk response plan
2. Create a revised project plan
3. Perform risk response audits
4. Perform updated risk identification and analysis

17.Question: In your project, you decide to create a prototype first to ensure that it is accepted by
stakeholders before moving on to build your product. This is an example of
1. Risk Mitigation
2. Risk Avoidance
3. Simulation
4. Project Assumptions Testing

18.Question: While doing risk response planning, you realize that there is a very critical risk which may
have a high impact on the project completion. So, you create a fallback plan which could include any of
the following conditions EXCEPT:
1. Subcontracting the project to an outside Vendor
2. Developing Alternative Options
3. Allocation of Contingency Reserves
4. Changing project scope

19.Question: You are the project manager in an automobile manufacturing company. Because of heavy
rains, the machine parts required in your manufacturing process which a vendor was sending to you,
could not reach you in time. You had anticipated this risk and planned for it in your risk response plan. So,
as per your risk response plan, you started using machine parts which had been supplied 1 year ago and
were not utilized at that time. However, this has subjected your project to a new risk - that the machine
parts which were not used for 1 year might be a having higher level of defects.

This new risk can also be called:

1. Unidentifiable Risk
2. Unmanageable Risk
3. Secondary Risk
4. Residual Risk

20.Question: Based on past estimates, there is 25% probability for a particular event to happen every
year. If a project lasts for 3 years, what is the probability that the activity will happen in the 3rd year?
1. 15.625 %
2. 6.25 %
3. 25%
4. 75%

21.Question: In your project, there is:

* 50% probability for $ 40,000 profit

* 50% probability for $ 25,000 loss

What is the Expected profit in your project?

1. $ 32,500
2. $ 25,000
3. $ 7,500
4. - $ 7,500 (i.e. loss of $ 7,500)

22.Question: In your project, you have sub-contracting your IT development efforts to 4 consultancy firms.
In this context, all the following statements relating to transferring of risk to a contractor are true EXCEPT:
1. Transferring risk requires payment of a risk premium
2. Fixed price contracts transfer risk to the seller if the design is unstable
3. Cost reimbursable contract leaves more of the risk with the customer or sponsor
4. Cost reimbursable contract helps reduce cost if there are mid-project changes

23.Question: Your project is now in the execution phase and you are continuously monitoring and
controlling risks to minimize surprises of negative risks, so that you can take timely action. Risk audits are
helpful in this context because they:
1. Examine and document the effectiveness of risk responses
2. Help in reassessment of risks
3. Provide trends in project`s execution which can be reviewed using performance data
4. None of the above
24.Question: You had budgeted $ 200,000 in your project as "contingency reserve." Now, when you are
75% through project execution, you notice that the funds in your contingency reserve are down to $
20,000. To compare the amount of contingency reserves remaining in your project to the amount of risk
remaining, you should conduct a:
1. Variance Analysis
2. Trend Analysis
3. Risk assessment
4. Reserve Analysis
25.Question: Since you know the importance of Risk Management, you always include it as a agenda
item in your weekly status meetings and spend 10 minutes discussing the risks. Some of your project
team members complain that since none of the risks are actually happening, discussing risk management
issues in status meetings is a waste of time. What should you do?
1. Talk with your team members about the importance of risk management and why the project team
needs to be aware of risks at all points of time
2. Agree with your team members and mention to them that going forward, no more time will be spent on
discussing risks in the project status meetings unless required in the future.
3. Call a meeting with your project sponsor and project management team to discuss potential training
requirements for your project team members so that they can appreciate the benefits of risk management
4. Anyone of the above depending on the situation in the project

ANSWERS:1. Ans: 4
Justification: Decision tree analysis is usually structured using a decision tree diagram that describes a
situation under consideration, and the implications of each of the available choices and possible
scenarios. It incorporates the cost of each available choice, the probabilities of each possible scenario,
and the rewards of each alternative logical path. Solving the decision tree provides the EMV (or other
measure of interest to the organization) for each alternative, when all the rewards and subsequent
decisions are quantified.

Reference: PMBOK Third Edition, Page Number: 257

comments: A Decision Tree is a diagram that describes a decision under consideration and the
implications of choosing one or another of the available alternatives. It incorporates probabilities of risks
and the costs or rewards of each logical path of events and future decisions. Solving the decision tree
indicates which decision yields the greatest expected value to the decision-maker when all the uncertain
implications, costs, rewards and subsequent decisions are quantified.

2. Ans: 2
Justification: Risk identification determines which risks might affect the project and documents their
characteristics

Reference: PMBOK Third Edition, Page Number: 246

3. Ans: 2
Justification: Residual risks that are expected to remain after planned responses have been taken, as well
as those which have been deliberately accepted.

Reference: PMBOK Third Edition, Page Number: 264

4. Ans: 1
Justification: Workaround: A response to a negative risk that has occured. Distinguished from contingency
plan in that a workaround is not planned in advance of the occurrence of the risk event.

Reference: PMBOK Third Edition, Page Number: 380

5. Ans: 3
Justification: The most common active acceptance strategy is to establish a contingency reserve,
including amounts of time, money or resources, to handle known-or even sometimes potential, unknown -
threats or opportunities.

Reference: PMBOK Third Edition, Page Number: 263

6. . Ans: 2
Justification: Please refer to the diagram:

Profit of Build : $ 5,000

Profit of Buy : $ 3,500
Opportunity cost of Build = Profit you give up if you do not buy = $ 3,500

7. Ans: 1
Justification: Tasks like creating an overall risk ranking of the project, creating list of prioritized risks,
identifying which risks need additional analysis and determining trends in risk analysis results - are all
outputs of Qualitative Risk Analysis (PMBOK Page 253). So, the next step is to perform Quantitative Risk
Analysis (i.e. Analyze the effect of risk events and assign a numerical rating to those risks - PMBOK Page
254)

Please note that Option 2, Option 3 and Option 4 refer to outputs from Risk Identification phase which is
already completed (PMBOK Page 249)

8. Ans: 3
Justification:
Expected Profit = Sum of (Probability X Profit) for each alternative
=(0.25 x $ 25,000) + (0.50 x $ 40,000) + (0.25 x $ 100,000)
= $ 6250 + $ 20,000 + $ 25,000
= $ 51,250

9. Ans: 4
Justification: The impact of risk management is to increase the probability and impact of positive events,
and to decrease the probability and impact of events adverse to the project.

Reference: PMBOK Third Edition, Page Number: 237

10. Ans: 2
Justification:
"Developing options, and determining actions to enhance opportunities and reduce threats to the project`s
objectives" - this is Risk Response Planning; PMBOK Page 260

"Identifying, analyzing and planning for newly arising risks" - this is Risk Monitoring and Control - PMBOK
Page 264. Please note that this happens after Risk Response Planning and is the correct answer

The other options happen before Risk Response Planning:

Determining which risks might affect the project and documenting their characteristics (Risk Identification,
PMBOK Page 246)
Deciding how to approach and conduct risk management activities for the project (Risk Management
Planning - PMBOK Page 242)
Assessing the priority of identified risks using their probability of occuring (Qualitative Risk Analysis -
PMBOK Page 249)

11. Ans: 4
Justification: Triggers: Indications that a risk has occured or is about to occur. Triggers may be discovered
in the risk identification process and watched in the risk monitoring and controlling process. Triggers are
sometimes called risk symptoms or warning signs.

Reference: PMBOK Third Edition, Page Number: 378

12. Ans: 4
Justification: The risk management plan includes the following: - Methodology - Roles and
Responsibilities - Budgeting - Timing - Risk categories

Reference: PMBOK Third Edition, Page Number: 243

13. Ans: 4
Justification: Figure 11-14

Reference: PMBOK Third Edition, Page Number: 260

14. Ans: 2
Justification: The Delphi Technique is a way to reach a consensus of experts on a subject. Project risk
experts participate in this technique anonymously

Reference: PMBOK Third Edition, Page Number: 248

15. Ans: 3
Justification: Influence diagrams: These are graphical representations of situations showing causal
influences, time ordering of events, and other relationships among variables and outcomes.

Reference: PMBOK Third Edition, Page Number: 248

16. Ans: 4
Justification: Results from an earned value analysis may indicate potential deviation of the project at
completion from cost and schedule targets. When a project deviates significantly from the baseline,
updated risk identification and analysis should be performed.

17. Ans: 1
Justification: Mitigation may require prototype development to reduce the risk of scaling up from a bench-
scale model of a process or product.

Reference: PMBOK Third Edition, Page Number: 262

18. Ans: 1
Justification: A fallback plan can be developed for implementation if the selected strategy turns out not to
be fully effective, or if an accepted risk occurs.

Reference: PMBOK Third Edition, Page Number: 261

comments: Subcontracting the project to an outside vendor is a Risk Transference technique. It simply
gives the other party responsibility for managing the risk but does not eliminate the risk.

19. Ans: 3
Justification: Secondary risks that arise as a direct outcome of implementing a risk response.

Reference: PMBOK Third Edition, Page Number: 264

20. Ans: 3
Justification: The probability of the activity happening every year is 25%. So, the probability that the task
will happen in the 3rd year is also 25%

21. Ans: 3
Justification:
Expected Profit = Sum of (Probability X Profit) for each alternative
= (0.50 x $ 40,000) + (0.50 x - $ 25,000)
= $ 20,000 - $ 12,500
= $ 7,500 profit

22. Ans: 2
Justification: Please refer to Risk Transfer

Reference: PMBOK Third Edition, Page Number: 262

comments: If the design is unstable, there is a potential that the seller also will not be deliver to
specifications. Hence there is a risk that the project will not succeed, and both the seller and buyer will be
impacted. Fixed Price contract for transference of risk is only effective if the project design is stable
23. Ans: 1
Justification: Risk audits examine and document the effectiveness of risk responses in dealing with
identified risks and their root causes, as well as effectiveness of the risk management process.

Reference: PMBOK Third Edition, Page Number: 266

24. Ans: 4
Justification: Reserve analysis compares the amount of contingency reserves remaining to the amount of
risk remaining at any time in the project, in order to determine if the remaining reserve is adequate.

Reference: PMBOK Third Edition, Page Number: 266

25. Ans: 2
Justification: Project risk management can be an agenda item at periodic status meetings. That item may
take no time or a long time, depending on the risks that have been identified, their priority, and difficulty of
response.

Reference: PMBOK Third Edition, Page Number: 267

comments: There is no need to spend a fixed amount of time in all the status meetings to discuss about
risk management issues.