Project Risk Management
Project Risk Management
Practice Questions
INSTRUCTIONS: Note the most suitable answer for each multiple-choice question in the appropriate space on the answer sheet.
1. A project manager has the option of proposing one of three systems to a client: a full-feature system that not only satisfies the minimum requirements but also offers numerous special functions (the "Mercedes"); a system that meets the client's minimum requirements (the "Yugo"); and a system that satisfies the minimum requirements plus has a few extra features (the "Toyota"). The on-time records and associated profits and losses are depicted on the decision tree below. What is the expected monetary value of the "Toyota" system?
Profit/loss
A. $9,900
B. $44,000
C. $45,000
D. $48,000
E. $60,000
2. The first requirement for effective risk management is:
A. Clear visibility of the information needed for decision making
B. Ownership of the risks that are identified
C. Appointment of the project manager early in the process to manage the identified risks
D. Project team members who are trained in risk and understand its causes to help construct and implement risk mitigation strategies
E. A project sponsor who requires a risk management plan
3. A person estimates that a commute home will most likely take 1 hour. On further questioning, she estimates that the trip could take as little as 45 minutes, best case, or 1 hour 45 minutes, worst case. What is the standard deviation based on the estimates?
A. 10 minutes
B. 15 minutes
C. 50 minutes
D. 60 minutes
E. 65 minutes
4. Projects are particularly susceptible to risk because:
A. Murphy's law states that "if something can go wrong, it will"
B. Each project is unique in some measure
C. Matrix management has not yet gained wide acceptance in organizations
D. Project management tools are generally unavailable at the project team level
E. There are never enough resources to do the job
5. Which of the following tools is the most appropriate for measuring schedule risk?
A. CPM
B. Decision trees
C. WBS
D. PERT
E. PDM
6. The term risk portfolio refers to-:
A. Risk quantification strategies
B. Identified schedule and cost risks
C. Cumulative EMV of the most critical risks
D. Risk mitigation strategies
E. Risk data assembled for the management of the project
7. The Delphi method is a particularly useful risk quantification technique to:
A. Present a sequence of decision choices graphically to decision makers
B. Define the probability of occurrence of specific variables
C. Determine probability assessments relating to future events
D. Help take into account the attitude toward risk of the decision maker
E. Formalize management's attitude toward risk
8. Most statistical simulations of budgets, schedule, and resource allocations use which of the following approaches?
A. PERT
B. Decision-tree analysis
C. Present value analysis
D. Monte Carlo techniques
E. Random number generation (normal, triangular, beta, uniform, and so on)
9. If, in the path convergence example below, the odds of completing activities 1, 2, and 3 are 50%, 50%, and 50%, respectively, what are the chances of starting activity 4 on day 6?
A. 10%
B. 13%
C. 40%
D. 50%
E. 150%
10. All the following criteria are considered essential to the assessment of technical risk except:
A. Planned procedures
B. Explicit attention to technical risk, not just to schedule or cost risk with consideration of technical risk implied
C. Critical path analysis
D. Documentation of procedures and results
E. Reassessment to detect changes in risk during a system's development
11. Range estimating identifies the-:
A. Mathematical probability that a cost overrun will occur
B. Amount of financial exposure
C. Risks and opportunities ranked in order of bottom-line importance
D. Contingency required for a given level of confidence
E. All the above
12. Each of the following statements about risk avoidance is true except that it:
A. Focuses on eliminating the elements that are creating the risk
B. Includes making the decision not to bid on a project in which the risk exposure is believed to be too high
C. Accepts the consequences of the risk event should it occur
D. Includes adopting an alternative, lower-risk technology path
E. Includes leaving the risk with the customer when the customer is in the best position to mitigate the risk
13. If the probability of event 1 is 80% and of event 2 is 70% and they are independent events, how likely is it that both events will occur?
A. 6%
B. 15%
C. 24%
D. 56%
E. None of the above
14. The WBS is a key input to the risk identification process because it:
A. Identifies all the work that must be done and, therefore, helps to identify potential sources of risk
B. Identifies all the work that must be done and, therefore, includes all the risks on the project
C. Helps to organize all the work that must be done on the project
D. Provides a basis for cost estimating
E. Identifies work packages, which enables specific responsibility to be assigned
15. To be effective, the risk management process:
A. Should be applied primarily during the concept and closeout phases and to some extent during the implementation and planning phases
B. Should be applied throughout the project and at all levels of system decomposition and project organization
C. Should include assembly of certain stakeholders to identify risks and develop mitigation strategies
D. Must be separated from the project management process by assigning a risk manager to the project
E. Should focus on those risks that senior management finds most critical
16. The simplest form of risk analysis is:
A. Probability analysis
B. Sensitivity analysis
C. Decision-tree analysis
D. Delphi method
E. Utility theory
17. If a business venture has a 60% chance to earn $2 million and a 20% chance to lose $1.5 million, what is the expected monetary value of the venture?
A. ($50,000)
B. $300,000
C. $500,000
D. $900,000
E. $1.2 million
18. Categories of responses to threats are:
A. Technical, marketing, financial, and human
B. Identification, quantification, response development, and response control
C. Avoidance, mitigation, and acceptance
D. Avoidance, retention, control, and deflection
E. Avoidance, mitigation, and retention
19. All the following are disadvantages of using statistical approaches to quantify risk except:
A. Input data are inaccurate and incomplete
B. Accurate processing of poor-quality data is expensive, time:consuming, and difficult to accomplish
C. Managers sometimes rely on computer-produced results that are detailed and impressive but inaccurate, which makes decision making difficult
D. Risk specialists may understand the statistical complexities but fail in communicating what they know
E. Statistical techniques are considered too theoretical when applied to risk
20. Of the following risk quantification approaches, which one considers the attitude of the decision maker toward risk?
A. Decision-tree analysis
B. Sensitivity analysis
C. Utility theory
D. Monte Carlo method
E. Decision theory
21. Risk exposure measures the:
A. Variability of the estimate
B. Product of the probability and impact of the risk
C. Range of schedu le and cost outcomes
D. Reduced monetary value of the risk event
E. b and d
22. The primary advantage of using decision-tree analysis in project risk management is that it:
A. Considers the attitude of the decision maker toward risk
B. Impresses upon management that there is a range of possible outcomes and shows the relative importance of each variable examined
C. Forces consideration of the probability of each outcome
D. Helps to identify and postulate risk scenarios for the project
E. Shows how risks can occur in combination
23. Contingency planning involves:
A. Defining the steps to be taken if an identified risk event should occur
B. Establishing a management reserve to cover unplanned expenditures
C. Preparing a stand-alone document that is separate from the overall
project plan
D. Determining needed adjustments to make during the implementation phase of a project
E. Determining what risks to avoid on a project
24. In a proactive approach to project risk management, the amount of a contingency reserve should be based on:
A. Standard allowances
B. Percentages based on past experience
C. The sum total of the most likely probability and impact of the various risk items
D. A set amount allocated to each item proportionately
E. An allowance of 10% for each phase in the project life cycle
25. Risk mitigation involves:
A. Using performance and payment bonds
B. Eliminating a specific threat by eliminating the cause
C. Avoiding the schedule risk inherent in the project
D. Assigning the risk to a subcontractor
E. Reducing the expected monetary value of a risk event by reducing the probability of occurrence
26. On a typical project, when are risks highest and impacts (amount at stake) lowest:
A. When the resource histogram peaks
B. During the concept phase
C. At or near completion of the project
D. During the implementation phase
E. When the project manager is replaced
27. All the following are examples of external risks except:
A. Regulatory considerations
B. Natural hazards
C. Inflation
D. Contract type
E. Taxation
28. The highest risk impact generally occurs during which of the following project life-cycle phases?
A. Concept and planning
B. Concept and implementation
C. Planning and implementation
D. Implementation and closeout
E. Concept and closeout
29. The major processes in project risk management are.
A. Risk identification, risk quantification, risk response development, and risk response control
B. Risk analysis, risk assessment, and risk management
C. Risk mitigation, risk assessment, and risk quantification
D. Risk identification, impact analysis, response planning, response system, and data applications
E. Deflection, contingency planning, risk identification, and impact analysis
30. Of the four types of risk inherent in project management, which one will have the most lasting effect from the customer's perspective if not managed well?
A. Scope risk
B. Schedule risk
C. Cost risk
D. Quality risk
E. Procurement risk
31. Your lead engineer estimates that a work package will most likely require 50 weeks to complete. It could be completed in 40 weeks if all goes well, but it could take 180 weeks in the worst case. What is the PERT estimate for the expected duration of the work package?
A. 45 weeks
B. 70 weeks
C. 90 weeks
D. 140 weeks
E. None of the above
32. Which of the following statements best describes the principle of fairness in risk allocation regarding contracts?
A. The party who has the most knowledge of certain risks and is in the best position to minimize those risks should bear most, if not all, of those risks.
B. The party who can gain whatever competitive advantage exists as a result of certain risks not occurring should bear most, if not all, of those risks.
C. The greater the number of risks, the better it is to share them among all contractual parties.
D. The seller should bear more risk than the buyer, because the seller is the party to the contract who is being reimbursed for the work performed.
E. The buyer should bear more risk than the seller, because the buyer has more knowledge of how risk relates to its operations.
33. All the following are purposes of project risk management except
A. Identifying factors that are likely to affect the project scope, quality, time, and cost
B. Developing response strategies for all identified risks
C. Providing a baseline for project factors that cannot be controlled
D. Mitigating impacts by influencing project factors that can be controlled
E. Quantifying the expected impact of each factor
34. The most important aspects of a risk from a management point of view are its:
A. Causes
B. Effects
C. Costs
D. Exposure value
E. Probability of occurrence
35. What are risk triggers?
A. Indirect manifestations of actual risk events
B. A symptom of a risk
C. An output of the risk identification process
D. An event that indicates that a risk event may occur
E. All the above
36. The objectives of a risk audit are t0:
A. Confirm that risk management has been practiced throughout the project life cycle
B. Confirm that the project is well managed and that the risks are being controlled
C. Verify the effectiveness of project reporting and project management
D. Help identify the deterioration of the project's profit potential in its early stages
E. All the above
37. Of the following types of historical information that serve as input to risk identification, which one is the least reliable?
A. Project files
B. Commercial databases
C. Project team knowledge
D. Previous project results
E. Lessons learned databases
38. A business risk:
A. Has only a loss associated with it
B. Has only a gain associated with it
C. Can be mitigated through insurance
D. Has the potential for both gain and loss
E. Cannot be identified with any accuracy in the concept phase of the project life cycle
39. The ultimate responsibility for identifying and managing project risks rests with the:
A. Project sponsor
B. Project manager
C. Contractor's guarantor, if a performance bond is required
D. Project team
E. Project manager and project sponsor
40. The primary objective of risk quantification is to:
A. Improve the accuracy of risk assessment
B. Take the guesswork out of the risk management process
C. Compare the cost of risk response development to the risk's expected monetary value
D. Determine which risk events warrant responses
E. Reduce the ambiguities in describing risks when using qualitative criteria