Deck 7: Risk Management

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

C

Question 3

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.

Answer 3

D

Question 4

The greatest project opportunity occurs when:

A)The project is in the conceive phase.
B)The project is in the develop phase.
C)The project is in the execute phase.
D)The project is in the finish phase.

Question 5

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 6

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 7

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 8

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 9

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

Question 10

Project risk is highest during the:

A)Finish phase of the project life cycle.
B)Conceive phase of the project life cycle.
C)Execute phase of the project life cycle.
D)Develop phase of the project life cycle.

Question 11

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.

Question 12

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

Question 13

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

Question 14

Project risk is lowest during the:

A)Conceive phase of the project life cycle.
B)Execute phase of the project life cycle.
C)Finish phase of the project life cycle.
D)Develop phase of the project life cycle.

Question 15

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 16

Risk management is a:

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

Question 17

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.

Question 18

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

Question 19

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

A)Execute phase.
B)Develop phase.
C)Conceive phase.
D)Finish phase.

Question 20

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

A)Develop phase of the project life cycle.
B)Conceive phase of the project life cycle.
C)Execute phase of the project life cycle.
D)Execute and Finish phases of the project life cycle.

Question 21

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 22

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 23

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 24

Your project team members do not have adequate training to complete project work and there are far fewer team members that what you need to complete your project activities according to your originally projected schedule.This situation represents an example of:

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

Question 25

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 26

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 27

A project under strict terms and conditions to produce project deliverables on time or suffer late penalties is an example of a:

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

Question 28

This scenario best describes a workaround:

A)Responding to an unforeseen event for which you had no response plan.
B)Responding to a foreseen event for which you had no response plan.
C)Responding to a foreseen even with your planned response.
D)Responding to an unforeseen event for which you had an effective response plan.

Question 29

The inability of a company to accurately predict the market's acceptance of its new product or service,and the product's profitability or success,is best described as:

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

Question 30

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 31

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 32

A company developing a brand-new technology that has never been made before is under a significant:

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

Question 33

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 34

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 35

The exposure a firm opens itself to when developing a project that requires a large up-front investment can be classified as:

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

Question 36

Workarounds are a response to project risk by recognizing an unforeseen threat and creatively manufacturing a viable solution to the problem.

Question 37

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

Question 38

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 39

Responding to an unforeseen threat that you either did not have a planned response for or has not been dealt with effectively by implementing your planned response is best described as a(n)

A)Mitigation plan.
B)Contingency.
C)Workaround.
D)Transference.

Question 40

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 41

If a project requires a large up-front investment of capital,it exposes the firm to commercial risk.

Question 42

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

Question 43

Use the failure probability and consequence scores shown in the table to determine the consequence of failure for the project. $$\begin{array} { | l | l | l | l | } \hline \text { Maturity } & 0.6 & \text { Cost } & 0.2 \\\hline \text { Complexity } & 0.8 & \text { Bchedule } & 0.3 \\\hline \text { Dependency } & 0.6 & \text { Reliability } & 0.2 \\\hline & & \text { Performance } & 0.5 \\\hline\end{array}$$

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 44

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 45

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 46

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 47

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 48

The PostHoc Company specializes in justifying decisions that have already been made.One day they fielded a request to perform a project risk analysis and compute the risk factor for buying an investment property on St.Charles Street in the Big Easy.There was no time (and no need to be perfectly honest)to gather any data regarding the situation;all they had to do was provide an equation and a number that showed the project wasn't too risky for the investor that had already made a decision to proceed.The investor wanted the overall project risk factor to come in at an even 0.5 and also wanted all of the scores for the seven factors that make up this score to have identical values.What is the probability of failure for complexity if these two criteria are met?

Question 49

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

Question 50

If the risk of a negative outcome is slight,the BEST course of action might be to:

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

Question 51

The programming division at ABC decides to resurrect the classic Battle of the Network Stars and is understandable concerned about the risk to their own stars,the shows they star on,and their reputation as a purveyor of fine family-oriented entertainment.After a thoughtful assessment of the probabilities and consequences of failure,the team discover that the three probabilities of failure are all equal and the four consequences of failure are all equal.Further,the overall consequence of failure is half the overall probability of failure.The overall risk factor is 0.6;what are the values for the three probabilities and the four consequences?

Question 52

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? $$\begin{array} { | l | l | l | l | } \hline \text { Maturity } & \mathbf { X } & \text { Cost } & \mathbf { Y } \\\hline \text { Complexity } & \mathbf { 2 X } & \text { Bchedule } & \text { 2Y } \\\hline \text { Dependency } & 4 \mathrm { X } & \text { Reliability } & \text { 4Y } \\\hline & & \text { Performance } & \text { 8Y } \\\hline\end{array}$$

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

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 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 55

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 56

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 57

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? $$\begin{array} { | l | l | l | l | } \hline \text { Maturity } & \mathbf { X } & \text { Cost } & \mathbf { Y } \\\hline \text { Complexity } & \mathbf { 2 X } & \text { Bchedule } & \text { 2Y } \\\hline \text { Dependency } & 4 \mathrm { X } & \text { Reliability } & \text { 4Y } \\\hline & & \text { Performance } & \text { 8Y } \\\hline\end{array}$$

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

Question 58

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

Question 59

When new projects involve unproven technology,they are under significant technical risk.

Question 60

Garman yawned as he sat at his kitchen table.His plans to corner the world's supply of peanut valves required detailed planning and an honest assessment of the risks involved in this highly speculative venture.He first identified the primary factors that might contribute to the project's failure.These factors were employee-related;market maturity-related;and health-related.The best estimates he could come up with for these probabilities were 0.6,0.2 and 0.3,respectively.The consequences of failure were less certain,but he finally decided that the cost consequences rated a 0.2,the schedule consequences rated a 0.4,the reliability consequences rated 0.1,and the company goodwill consequences were a robust 0.6.What is the overall project risk factor for this undertaking?

Question 61

The task contingency reserves address higher-level risks.

Question 62

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 63

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

Question 64

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 65

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 66

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 67

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 68

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 69

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 70

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

Question 71

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 72

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 73

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 74

One approach to risk mitigation is simply to accept it.

Question 75

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 76

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 77

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 78

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 79

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 80

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.