Deck 7: Risk Management

Question 1

Risk and opportunity:

A) Both increase throughout the project life cycle.
B) Vary inversely throughout the project life cycle.
C) Both decrease throughout the project life cycle.
D) Do not vary throughout the project life cycle.

Answer 1

C

Question 2

The greatest project risk occurs when:

A) The probability of the event is high and the consequences of the event are high.
B) The probability of the event is high and the consequences of the event are low.
C) The probability of the event is low and the consequences of the event are high.
D) The probability of the event is low and the consequences of the event are low.

Answer 2

A

Question 3

Project risk is highest during the:

A) Termination stage of the project life cycle.
B) Concept stage of the project life cycle.
C) Implementation stage of the project life cycle.
D) Development stage of the project life cycle.

Answer 3

B

Question 4

The period of highest risk impact for a project risk exists primarily in the:

A) Development stage of the project life cycle.
B) Concept stage of the project life cycle.
C) Implementation stage of the project life cycle.
D) Termination stage of the project life cycle.

Question 5

Risk management is a:

A) Three-stage process.
B) Four-stage process.
C) Five-stage process.
D) Six-stage process.

Question 6

The amount a company has at stake in a project rises above the dollar value of opportunity in the:

A) Implementation phase.
B) Development phase.
C) Concept phase.
D) Termination phase.

Question 7

Opportunity emerges from favorable project circumstances and risk from unfavorable events.

Question 8

Sketch the risk level and opportunity curves as a function of the project life cycle stage. Provide an example of a project from the recent business literature or your personal experience that exhibits these characteristics. Cite specific instances where the levels of opportunity, risk, and stake fluctuated.

Question 9

To protect his poultry from meteorites, the gentleman farmer made hard hats for each bird and installed a meteor detection system that opened umbrellas throughout the yard if a meteor were detected. The safety of his flock thus assured, the farmer was surprised when he read his latest issue of Risk Management Magazine and discovered that this event was:

A) High in consequence and high in probability.
B) Low in consequence and low in probability.
C) Low in probability and high in consequence.
D) High in probability and low in consequence.

Question 10

While thrilling, there is a chance that you would have an accident if you elected to drive on the wrong side of a divided highway in Woodward, an outcome that could be described as:

A) High in consequence and high in probability.
B) Low in consequence and low in probability.
C) Low in probability and high in consequence.
D) High in probability and low in consequence.

Question 11

As risk decreases in the project life cycle, opportunity increases.

Question 12

The greatest project opportunity occurs when:

A) The project is in the concept phase.
B) The project is in the development phase.
C) The project is in the implementation phase.
D) The project is in the termination phase.

Question 13

How does risk level vary with project life cycle stages? Where is the period of highest risk impact? Why?

Question 14

The construction foreman posted a large sign requiring all work site visitors to don a hard hat and safety glasses. He also purchased copious quantities of both items and made them readily available at the entrance. The foreman is engaged in:

A) Risk identification.
B) Risk mitigation.
C) Analysis of probability and consequences.
D) Control and documentation.

Question 15

Project risk is lowest during the:

A) Concept stage of the project life cycle.
B) Implementation stage of the project life cycle.
C) Termination stage of the project life cycle.
D) Development stage of the project life cycle.

Question 16

The residents of Enumclaw, Washington, live in the shadow of majestic Mount Rainier and its 26 glaciers. The Cascades form a ring of fire around the Pacific Northwest and erupt with surprising regularity, although Mount Rainier hasn't erupted on a major scale since about a thousand years ago. When it does erupt, the pyroclastic flow (a massive cloud of superheated ash and rock up to 1500 degrees Fahrenheit that can travel at speeds up to 300 miles per hour) will make Enumclaw a less pleasant place to live. City leaders have completed the:

A) Control and documentation phase of risk management.
B) Risk identification phase of risk management.
C) Analysis of probability and consequences phase of risk management.
D) Risk mitigation strategies phase of risk management.

Question 17

Jim knew instinctively that his professor wouldn't appreciate it if he brought his single scoop of vanilla ice cream into the lecture hall with him. He could almost hear the inevitable question, "Did you bring enough for everyone?" To avert such an embarrassment, he practically inhaled his frozen confection as he raced down the hall. He had eaten ice cream in this fashion before and knew he would soon have an ice cream headache, which could be described as:

A) High in consequence and high in probability.
B) Low in consequence and low in probability.
C) Low in probability and high in consequence.
D) High in probability and low in consequence.

Question 18

Risks can be quantified by multiplying the likelihood a failure will occur by the severity of the failure.

Question 19

The difference between projects that fail and those that are ultimately successful has to do with:

A) The plans that have been made to deal with problems as they arise.
B) The fact that a successful project doesn't encounter problems.
C) Whether the project is for an internal or external customer.
D) Whether the problem is time- or budget-related.

Question 20

The risk is highest in the earliest phase of the project life cycle.

Question 21

The marketing team would develop the advertising campaign to promote the newest product but the engineers wanted to keep all product details a secret during development. The service and operations branches of the company were also in the dark, so product rollout was going to be their initiation as well. This project has a very high:

A) Political risk.
B) Operating risk.
C) Organizational risk.
D) Integration risk.

Question 22

The probability that funds allocated to the project will be insufficient to complete it is:

A) Technical risk.
B) Cost estimate risk.
C) Financing risk.
D) Operating risk.

Question 23

A method for conducting risk factor identification that generates ideas but doesn't focus on decision making is:

A) A brainstorming meeting.
B) The Delphi method.
C) Past history.
D) Multiple assessments.

Question 24

The probability that a project will overrun its allocated duration is:

A) Volume market risk.
B) Price market risk.
C) Integration risk.
D) Schedule risk.

Question 25

The probability that investments made to fund the front-end activities will be lost due to project abandonment is:

A) Promotion risk.
B) Political risk.
C) Organizational risk.
D) Financial risk.

Question 26

There is always a chance that the music loving public cannot be convinced of the need to return to the 8-track format for new releases. The probability that we don't sell one million units before the holiday season is:

A) Promotion risk.
B) Market risk.
C) Organizational risk.
D) Financial risk.

Question 27

One source of information on future risks and the leading indicators that accompany risks is:

A) A brainstorming meeting.
B) The Delphi method.
C) Past history.
D) Multiple assessments.

Question 28

The probability that project revenues will NOT be sufficient to repay the debts is:

A) Financial risk
B) Cost estimate risk.
C) Market risk.
D) Promotion risk.

Question 29

The probability that a project to establish infrastructure in a third-world country teetering on the brink of civil war is fraught with:

A) Political risk.
B) Operating risk.
C) Organizational risk.
D) Integration risk.

Question 30

What are the four distinct stages of systematic risk management and what takes place at each?

Question 31

The terpsichorean was familiar with the risks associated with various moves, the accountant knew financial risks forwards and backwards, while the civil engineer could quantify the risks associated with distributed loads on the temporary stage. Their input was used as part of:

A) A brainstorming meeting approach to risk factor identification.
B) The Delphi method approach to risk factor identification.
C) A past history approach to risk factor identification.
D) A multiple assessments approach to risk factor identification.

Question 32

A method for conducting risk factor identification that consolidates the judgments of isolated anonymous respondents is:

A) A brainstorming meeting.
B) The Delphi method.
C) Past history.
D) Multiple assessments.

Question 33

Based on the projected selling price of $20 per unit, the manufacturer invested a substantial portion of its available cash in a machine that could produce twenty-thousand gumballs in an hour. If consumers weren't willing to pay this much for gum, then the manufacturer faced significant:

A) Financial risk.
B) Promotion risk.
C) Cost estimate risk.
D) Market risk.

Question 34

A serious risk factor probably has:

A) A high consequence and a medium likelihood.
B) A high consequence and a low likelihood.
C) A medium consequence and a low likelihood.
D) A low consequence and a medium likelihood.

Question 35

The house had almost been framed when an F-5 tornado ripped across the plains and turned the house back into a lumber pile, albeit not stacked as neatly as it was originally. The homeowner's fears of:

A) Technical risks had come true.
B) Operating risks had come true.
C) Acts of God had come true.
D) Environmental risks had come true.

Question 36

With a maturity risk of 0.3, a complexity risk of 0.4, and a dependency risk of 0.5, the probability of failure is:

A) About 0.3.
B) About 0.4.
C) About 0.5.
D) About 0.6.

Question 37

A project team assigns probabilities of 0.1, 0.2, and 0.4 respectively to the maturity, complexity, and dependency categories. The probability of failure can be calculated as:

A) 0.23.
B) 0.33.
C) 0.65.
D) 0.70.

Question 38

The mouse executive board meeting was drawing to a conclusion; the only way they would be able to detect the presence of the cat was to tie a bell around its tail. Under their risk management identification scheme, this would fall under:

A) Commercial risk.
B) Execution risk.
C) Financial risk.
D) Technical risk.

Question 39

The probability that legal and managerial structures put together to develop and operate the project will NOT perform well is:

A) Operating risk.
B) Political risk.
C) Organizational risk.
D) Integration risk.

Question 40

A project team assesses their primary risk factor's probability of failure with a maturity risk of 0.3, a complexity risk of 0.7, and a dependency risk of 0.8. The probability of failure is:

A) Less than or equal to 0.3.
B) Greater than 0.3 but less than or equal to 0.55.
C) Greater than 0.56 but less than or equal to 0.89.
D) Greater than or equal to 0.9.

Question 41

The overall risk factor for the project is known to be 0.5. The individual failure probability and consequence scores are not known with certainty, only that all of the failure probability scores are identical and all of the consequence scores are identical. What are the individual failure probability scores?

A) 0.316
B) 0.267
C) 0.236
D) 0.347

Question 42

The firm set aside a little extra money just in case an unforeseen element of cost pushed the project beyond what they had budgeted. This extra money is called:

A) A rainy day fund.
B) A contingency reserve.
C) An escalation clause.
D) A sinking fund.

Question 43

The professor wore both a belt and suspenders during lecture each day because he chose to:

A) Accept risk.
B) Minimize risk.
C) Share risk.
D) Transfer risk.

Question 44

What are the basic qualitative methods for identifying risk factors? What are the advantages and disadvantages of each method?

Question 45

With a cost factor of 0.8, a schedule rating of 0.6, a reliability rating of 0.5, and a performance rating of 0.6, the overall consequence of failure was:

A) 0.565 for the squidproofing project.
B) 0.500 for the squidproofing project.
C) 0.750 for the squidproofing project.
D) 0.625 for the squidproofing project.

Question 46

The project team toiled long into the night to develop consequence of failure scores and probability of failure scores as indicated below. What is the overall risk factor for the project?

A) Less than or equal to 0.7
B) Greater than 0.7 but less than or equal to 0.8
C) Greater than 0.8 but less than or equal to 0.9
D) Greater than 0.9

Question 47

The probability that the investments made to fund the front-end activities will be lost due to project abandonment is financing risk.

Question 48

Technical risk is the probability that the project will not perform to the required standards or produce substandard products or have excessive operating cost consumption.

Question 49

Fred Knievel took out a substantial life insurance policy before he began his trek across North America in his Volvo. Doing so enabled him to:

A) Accept risk.
B) Minimize risk.
C) Transfer risk.
D) Share risk.

Question 50

Sketch a 2 × 2 risk management assessment matrix and discuss the impact of each quadrant.

Question 51

The overall project risk factor is known to be 0.6. The probability of dependency failure is twice the probability of complexity failure and four times the probability of maturity failure. The consequence of performance failure is twice the consequence of reliability failure, four times the consequence of schedule failure and eight times the consequence of cost failure. What is the probability of maturity failure?

A) 0.213
B) 0.197
C) 0.104
D) 0.148

Question 52

Project penalty clauses that initiate at mutually agreed-on points in the project's development and implementation are:

A) Liquidated damages.
B) Milestone adjustments.
C) Contingency clauses.
D) Penalty points.

Question 53

The pointy-haired dean gently suggested that study tour offerings be doubled in the coming three years so Dilbert dutifully explored the possibility of offering a week-long study tour to Elbonia. The globalization committee's consensus was that the probability of failure was high; after some discussion they agreed that the figure was perhaps 0.6. The consequences of failure were another matter. The cost of failure was 0.2, the schedule element was 0.1, and the reliability score was 0.1. The team was divided on what to do with the performance score. Two members were adamant that it was possibly as high as 0.7, but the other two members felt the performance score was closer to the others, in the neighborhood of 0.15. Estimate the overall project risk factor for this undertaking and offer commentary as to the efficacy of the study tour to Elbonia.

Question 54

The consequences of failure categories of cost, schedule, reliability, and performance were believed to be 0.25, 0.35, 0.45, and 0.55. What is the overall consequence of failure?

A) 0.2
B) 0.3
C) 0.4
D) 0.5

Question 55

Use the failure probability and consequence scores shown in the table to determine the consequence of failure for the project.

A) Greater than 0.7
B) Less than or equal to 0.7 but greater than 0.5
C) Less than or equal to 0.5 but greater than 0.3
D) Less than 0.2

Question 56

What are any four common categories of risk? What is an element of each category?

Question 57

The overall project risk factor is known to be 0.5. The probability of dependency failure is twice the probability of complexity failure and four times the probability of maturity failure. The consequence of performance failure is twice the consequence of reliability failure, four times the consequence of schedule failure and eight times the consequence of cost failure. What is the difference between the probability of maturity failure and the consequence of cost failure?

A) 0.026
B) 0.033
C) 0.041
D) 0.048

Question 58

Your project team is interested in determining an overall risk factor for your project to develop a personal submarine constructed entirely of Popsicle sticks and wood glue. Describe how you would develop reasonable estimates for each of the probability of failure categories and each of the consequence of failure categories.

Question 59

The overall consequence of failure was 0.4 and curiously enough, the consequence of performance is twice that of reliability; the consequence of reliability is twice that of schedule; and the consequence of schedule is twice that of cost. What is the consequence of failure cost?

A) 0.091
B) 0.107
C) 0.123
D) 0.136

Question 60

The Farm Fresh Egg project was too great for one person to pull off. The construction costs for the coop and chicken run were enormous and the sinister threat of avian flu hung over the area like a black cloud. It was only through the combined efforts of Matsushita Chickenworks and the City of Edmond that the project would be undertaken, since they would be able to:

A) Accept the risk.
B) Minimize the risk.
C) Transfer the risk.
D) Share the risk.

Question 61

Risk cannot be transferred because ultimately your own project will suffer the consequences if the event occurs.

Question 62

The European Association for Project Management has developed an integrated program of risk management based on efforts to extend risk management to cover a project's entire life cycle. This program is known as:

A) EAPM-RM.
B) RMEAPM.
C) ERM.
D) PRAM.

Question 63

You have agreed to paint your neighbor's house a lovely shade of chartreuse for $1500 and discover much to your dismay that the house has a second floor. Now you're faced with the prospect of buying a ladder or scaffolding or a really long handled brush, not to mention the 15 more gallons of paint that will be needed to cover. You won't get another penny for what will surely be increased efforts since your neighbor transferred risk with a(n):

A) Cost-plus contract.
B) Contingency reserve.
C) Fixed price contract.
D) Inflation clause.

Question 64

What are fixed-price contracts and liquidated damages? Which party to the contract bears the burden?

Question 65

Which of these statements about the project risk analysis and management program is BEST?

A) If a choice between accepting and transferring risk presents itself, risk should be transferred.
B) Different risk management strategies should be deployed at various points in the project life cycle.
C) The project manager should choose a small subset of all risk management tools.
D) Risk management is best handled using an ad hoc approach.

Question 66

The budget safety measures that address higher risks than task contingency are known as:

A) CYA factors.
B) Buffer stocks.
C) Managerial contingency.
D) Task offsets.

Question 67

Each project team member had a backup that could fill in at a moment's notice should another team member fall by the wayside. The project was able to mitigate risks in this fashion thanks to an aggressive:

A) Mentoring program.
B) Cross-training program.
C) Duplication program.
D) Featherbedding program.

Question 68

What are the four alternatives a project organization can adopt in deciding how to address their risks? What are the advantages and disadvantages of each? Which is best and why?

Question 69

Twenty-thousand dollars was budgeted for the office renovation that had a task contingency multiplier of 1.3. The estimated cost of the task must be:

A) About $15,400.
B) About $26,000.
C) About $22,800.
D) About $18,600.

Question 70

The expected cost of an item that is estimated at $5,000 with a task contingency multiplier of 1.2 is:

A) $4,167.
B) $5,000.
C) $5,200.
D) $6,000.

Question 71

The highest dollar value of reserves is typically task contingency.

Question 72

Which of these statements about the project risk analysis and management program is BEST?

A) Risk management is integrated throughout the project's life cycle.
B) The risk management strategy should be unwavering throughout the entire project life cycle.
C) The project manager should choose a small subset of all risk management tools.
D) Risk management is best handled using an ad hoc approach.

Question 73

The act of pairing a junior project team member with a senior manager in order to help the junior team member to learn best practices is known as:

A) Mentoring.
B) Cross-training.
C) Supervising.
D) Interning.

Question 74

A common use of managerial contingency funds would be for:

A) Office supplies.
B) Management consulting fees.
C) A sudden increase in the price of unleaded gasoline.
D) An "act of God."

Question 75

Which of these statements about the project risk analysis and management program is BEST?

A) Risk management follows a life cycle much as a project follows a life cycle.
B) The risk management strategy should be unwavering throughout the entire project life cycle.
C) If a choice between accepting and transferring risk presents itself, risk should be transferred.
D) Risk management is best handled using an ad hoc approach.

Question 76

There are four alternatives a project organization can adopt in deciding how to address their risks. Develop four different scenarios, one each for which each of the alternatives would be appropriate. Justify your selections.

Question 77

What is the relationship between a project's progress and the level of budget reserves?

A) As the project nears completion, the budgeted reserves tend to increase.
B) As the project nears completion, the budgeted reserves tend to decrease.
C) As the budgeted reserves increase, the project tends to near completion.
D) As the budgeted reserves decrease, the project tends to near completion.

Question 78

Contingency reserves require a construction company to hold back some funds in an account just in case something happens that increases the overall project cost.

Question 79

Which of these statements about the project risk analysis and management program is BEST?

A) Risk management is best handled using an ad hoc approach.
B) If a choice between accepting and transferring risk presents itself, risk should be transferred.
C) The project manager should choose a small subset of all risk management tools.
D) Multiple approaches to risk management should be integrated into a coherent, synthesized approach.

Question 80

One approach to risk mitigation is simply to accept it.