RISK MANAGEMENT
1. Answer: c
In a fixed price contract the supplier is obligated to deliver the contracted-for
item at a fixed price. The supplier is aware of the risk and will put an allowance
for the risk in the contracted price. This often means that the project team will
pay the supplier for the cost of the risk regardless of whether the risk occurs.
2. Answer: a
Risk avoidance is eliminating the risk from consideration by doing something
that will eliminate it as a possibility. Risk acceptance is allowing the risk to
happen and dealing with it if it occurs. Risk deflection or transfer is transferring
the risk to someone other than the project team, such as an insurance company
or outside supplier.
3. Answer: c
Risk mitigation is the process of reducing a risk to acceptable levels. In risk
mitigation the risk has either a reduced impact or probability or both. This
reduces the risk severity to levels below the risk tolerance.
4. Answer: b
Including a contingency budget will set aside money for known, identified
risks. This will give more control to the project and reduce the problem of
known risks using budget that was set aside for the work of the project and
causing a cost overrun in the project.
5. Answer: d
The expected value of a risk is the probability of the risk times the impact of
the risk summed up for all possibilities.
.4 ןמ10,000 מ4,000
.3 ןמ7,500 מ2,250
.2 ןמ5,000 מ1,000
.1 ןם2,500 ם250
מ7,000
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6. Answer: c
Management reserve is funds set aside to manage unidentified risks. PMI refers
to these as the ‘‘unknown unknowns.’’ When the management reserve is used,
it is moved from the management reserve to the cost or schedule baseline.
7. Answer: a
Risk triggers, sometimes called risk symptoms, are indications that a risk is
about to occur. In this example there is a risk that the project will be delayed.
There is a warning that this will occur because several activities are now overdue
for completion. They do not affect the project schedule yet, but if this trend
continues the project will be late.
8. Answer: a
Because of risk in most projects the probability distribution is usually skewed.
This is because there are more things that will adversely affect schedules than
there are that will improve them. If the probability distribution of the scheduled
completion of the project is indeed skewed, then the most likely date for project
completion will be earlier than the mean value or the expected value.
9. Answer: d
The expected value is found by multiplying the probability of the risk by the
cost of the impact of the risk should it occur. EV ס 25,000 ן 10%
10. Answer: b
This is a matter of applying the probability rule of addition. This rule says that
the probability of either one of two events is equal to the probability of one
event plus the probability of the second event minus the probability of both of
the events occurring.
P(6 or 6) ס P(6) ם P(6) מ P(6 and 6)
P(6 and 6) ס P(6) ן P(6)
P(6 and 6) ס 1/6 ן 1/6 ס 1/36
P(6 or 6) ס 1/6 ם 1/6 מ 1/36 ס 11/36
11. Answer: c
A buffered schedule is one where float is deliberately created in the schedule.
Buffers are deliberately created between tasks on the critical path, and the activi-
ties are rescheduled to more closely approximate the schedule to the new prom-
ise date.
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349Risk Management
12. Answer: d
The client’s outsourcing method has nothing to do with risk management; all
the other choices are items that should be included in the risk description.
13. Answer: c
The lessons learned document from other similar projects can be a great help
in determining the new risks associated with this project. Many times risks
repeat themselves from one project to another. This makes the lessons learned
document very important for all projects.
14. Answer: c
The result of the first risk meeting of a project team is to identify as many risks
as possible in the time allowed.
15. Answer: b
The Monte Carlo technique is a refinement of PERT. In the PERT process the
range of values and the probability that they can occur is calculated for the
project completion date or parts of the project. The Monte Carlo technique
allows for shifts that may occur in the critical path during possible values of the
durations of the activities of the project. It is a simulation technique that pro-
duces a value called the criticality index, which is the percent of simulations
that a particular activity is on the critical path. That is, criticality index is the
percent of the number of simulations that an activity is on the critical path.
16. Answer: c
The management reserve is time and money used to offset the effect of un-
known risks affecting cost and schedule. These risks can only be approximated
since none of them are specifically identified. PMI refers to these risks as the
known-unknown risks and the identified risks as the known-known risks.
17. Answer: a
The break even point justification technique predicts a point in time where the
benefits offset the costs involved. It is a simple justification technique that takes
into consideration a lot of assumptions. Since it predicts the point in time
where the benefits exceed the cost, given the choice of an expensive and a cheap
machine, the cheap machine will usually have high short term benefits, and the
expensive machine will have higher long term benefits.
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18. Answer: d
In critical chain theory the feeder chains are activities that are not on the critical
path. These tasks are scheduled to be done as late as possible and then buffered
so that they start earlier than the late schedule dates. Buffer is also added to the
critical path of the schedule to improve the probability that the project will
finish on time. Feeder chain activities as well as critical chain activities are not
started as early as possible or as late as possible. They are started as late as
possible minus their buffer.
19. Answer: c
In the normal probability distribution or any symmetric probability distribu-
tion, the most likely value of the distribution is the peak of the distribution
curve. This is the value that has the highest probability of occurring. In a sym-
metric probability distribution this will be the center of the curve as well. There
is a 50% probability that the project will finish past the most likely date and a
50% chance that the project will finish earlier than that date.
20. Answer: c
Risks are events that affect a project for better or worse. Positive risks increase
the positive cash flow or benefits to the project, and negative risks increase the
negative cash flow or benefits of the project.
21. Answer: a
Fast tracking is changing the project plan to schedule activities that were
planned to be done in sequence so that they can be done completely or partially
in parallel. This will increase risk, because more work will be done if a problem
is discovered.
22. Answer: b
In determining the worst case situation, all of the negative risks are included
and none of the positive risks are included in the total. This makes the assump-
tion of the worst case as being that all of the bad things happen and none of
the good things happen.
23. Answer: b
Insurance transfers (deflects) the problem of the risk to someone else who takes
the responsibility for the loss caused by the risk. In this case an insurance com-
pany agreed to compensate PMI if this loss occurred.
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351Risk Management
24. Answer: d
During project closeout much of the project work has been completed and
many of the risks have passed the time in which they can occur. The total risk
of the project is therefore lowest during closeout.
25. Answer: c
The Monte Carlo technique is a refinement of PERT. In the PERT process the
range of values and the probability that they can occur are calculated for the
project completion date or parts of the project. The Monte Carlo technique
allows for shifts that may occur in the critical path during possible values of the
durations of the activities of the project. It is a simulation technique that pro-
duces a value called the criticality index, which is the percent of simulations
that a particular activity is on the critical path.
26. Answer: b
If any of the activities are late, the entire project of the three activities will be
late. To state this as three mutually exclusive events we consider the probability
of all three of the events occurring on time. This is .9 for each, and the probabil-
ity of all three occurring is .9ן.9ן.9 ס .73.
27. Answer: c
The probability is that at least one of the sellers will deliver the parts on time.
This is the same as saying either vendor A or B must deliver. This is the addition
rule in probability. The probability that the first seller will deliver is .9. The
probability that the second seller will deliver is also .9, but the second seller
delivering on time is only of consequence if the first seller fails to deliver on
time, or .1. The calculation is then .9 ם (.1ן.9) ס .99.
28. Answer: b
This is the definition of value engineering used in the Guide to the PMBOK
Glossary.
29. Answer: b
A workaround is the work that is not planned ahead of time to take care of a
threat that occurs.
30. Answer: d
In an even distribution any date in the distribution will have the same probabil-
ity as any other date in the distribution.
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31. Answer: b
The Monte Carlo technique is a simulation technique that assigns a value to
the duration for each activity in the schedule. This assignment can be by user
selected probability distributions. Depending on the values of the duration for
each activity the critical path may change from simulation run to simulation
run.
32. Answer: a
Risk acceptance is doing nothing about the risk until it happens. This is done
with risks that are below the risk tolerance level.
33. Answer: b
Risk tolerance is the measure of the client to take risks. A client with a low risk
tolerance will not be willing to take very many or large risks even though they
may produce considerable opportunities to make large profits.
34. Answer: b
The Monte Carlo technique is a computer simulation method that selects dura-
tions for schedule events according to a probability distribution on a random
basis. For each set of selected durations the simulation is run and the schedule
and critical path are calculated. The result is a probability distribution showing
the probability of project completion dates that are possible. The criticality
index shows the percent of simulations that any activity is on the critical path.
35. Answer: b
Simulations such as the Monte Carlo simulation are frequently used in risk
management. It is far less expensive to model the real world than to actually do
things in the real world.
36. Answer: b
Risk analysis should be done frequently throughout the project.
37. Answer: d
The risk option of mitigation means that the impact or the probability is re-
duced to a level below the risk tolerance level. This means that the risk is now
acceptable.
38. Answer: b
Qualitative assessment of risks is often appropriate. When there is little impact
from a risk or when little is known about the risk parameters it may only be
practical to evaluate risks in a qualitative way.
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353Risk Management
39. Answer: c
This is the definition of sensitivity analysis in the Guide to the PMBOK.
40. Answer: a
The expected value of the risk is the probability of the risk multiplied by its
cost. This is one method of ranking risks. Risks can also be ranked qualitatively
by assigning them qualitative values like ‘‘very risky’’ and ‘‘not too risky’’ and
ranking them in groups.
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. one project to another. This makes the lessons learned
document very important for all projects.
14. Answer: c
The result of the first risk meeting of a project. CH24 09-06-02 15:01:12 PS
348 Preparing for the Project Management Professional Certification Exam
6. Answer: c
Management reserve is funds set aside to manage