Financial Management for Project Managers Risk Management 2 — Questions and Answers
Question 1: A project manager calculates the Expected Monetary Value (EMV) of a risk event with a 30% probability and a $50,000 impact. What is the EMV?
- $15,000 (Correct answer)
- $35,000
- $50,000
- $150,000
Correct answer: $15,000
EMV = Probability × Impact = 0.30 × $50,000 = $15,000.
Question 2: Which risk response strategy involves shifting the financial impact of a risk to a third party, such as through insurance?
- Avoid
- Mitigate
- Transfer (Correct answer)
- Accept
Correct answer: Transfer
Transferring a risk moves the financial consequence to another party (e.g., insurer or contractor) without eliminating the risk itself.
Question 3: A Monte Carlo simulation is used in project financial risk management primarily to:
- Assign risk owners to each identified risk
- Model the probability distribution of possible project cost outcomes (Correct answer)
- Rank risks by their severity on a heat map
- Calculate the payback period of the project
Correct answer: Model the probability distribution of possible project cost outcomes
Monte Carlo simulation runs thousands of iterations to produce a probability distribution of possible cost or schedule outcomes.
Question 4: When a project team decides to add redundant systems to reduce the likelihood of a technical failure, this is an example of:
- Risk avoidance
- Risk transfer
- Risk mitigation (Correct answer)
- Risk acceptance
Correct answer: Risk mitigation
Adding redundancy reduces the probability or impact of a risk, which is the definition of risk mitigation.
Question 5: A project has a risk reserve of $80,000. After using $30,000 for realized risks, what percentage of the original reserve remains?
- 37.5%
- 62.5% (Correct answer)
- 27.5%
- 75%
Correct answer: 62.5%
Remaining reserve = $50,000; $50,000 ÷ $80,000 = 62.5%.
Question 6: In a risk register, the 'risk owner' field is used to document:
- The sponsor who approved the risk budget
- The individual responsible for monitoring and responding to the risk (Correct answer)
- The stakeholder who first identified the risk
- The project manager who controls the contingency fund
Correct answer: The individual responsible for monitoring and responding to the risk
The risk owner is the person accountable for monitoring the risk and executing the agreed response plan.
Question 7: Which of the following best describes a 'secondary risk' in project financial management?
- A risk with low probability but high impact
- A new risk created as a direct result of implementing a risk response (Correct answer)
- A risk inherited from a previous project phase
- A risk that affects only indirect project costs
Correct answer: A new risk created as a direct result of implementing a risk response
Secondary risks emerge as a consequence of the actions taken to address an original risk.
Financial Management for Project Managers Risk Management 2
A project manager calculates the Expected Monetary Value (EMV) of a risk event with a 30% probability and a $50,000 impact.
What is the EMV?