Risk  Knowledge Area

 

Each project will have positive and/or negative risks.   Positive risks are called opportunities, and negative risks are called threats.

 

The goal of the Risk Management Knowledge Area is to increase the possibility and effect of opportunities and decrease the possibility and impact that could happen due to threats.

In this knowledge area, you think of and document the risks, their impact on the project, and how you will mitigate or take advantage of the risks, if and when any risk becomes an issue. This information is recorded in the risk register.

Questions for THE Risk Knowledge Area
 
Question 1
  • Which of the following risks can be mitigated by Monte Carlo analysis?

  1. Non-event risks

  2. Event-based risks

  3. Variability risks

  4. Ambiguity risks

Question 2
  • You are reviewing documents related to risks for your new project. One of the risk documents contains a section that has all the risks and their sources in a hierarchical order. What is the section referred to as?

  1. Risk breakdown structure (RBS)

  2. Risk categories

  3. Risk management plan

  4. Risk strategies

Question 3

  • You have a choice to buy or internally develop a software product. If you develop it internally, the added advantage is that you can sell subscriptions in the open market and it can be profitable if there is strong demand. 

The software purchase price is $2 million. If developed internally and sold, a strong market (25% possibility) will get you a net profit of $20 million after subtracting for development expenses. But a weak demand (75% possibility) will result in a net loss of $10 million. What is the net path value (NPV) of developing internally followed by a weak demand?

  1. Loss of $2M

  2. Loss of $10M

  3. Gain of $18M

  4. Gain of $20M

 

Question 4:
  • Which of the following is not true for variability risks?

    1. Variability risks are a type of non-event based risk, borne due to uncertainties related to certain key characteristics of project activities or decisions.

    2. Delay in construction schedule due to unseasonal weather conditions is an example of variability risk.

    3. Variability risks can be addressed using Monte Carlo analysis.

    4. All of the above statements are true for variability risks.

 

Question 5
  • Sarah Jacobson is a project manager for a manufacturer in Richardson, Texas, that produces and markets machinery for power-generation firms. She needs to purchase equipment from a vendor in Rome. Fortunately, due to recent currency fluctuations between US Dollars and Euros, it is advantageous for her to quickly purchase the equipment from Italy and get that delivered to Texas. She works with the procurement administrator to place the order as quickly as possible. What type of risk response is this?

    1. Escalate

    2. Exploit

    3. Enhance

    4. Accept

Question 6
  • Change requests are a possible output of which one of the following processes in Risk Management?

    1. Plan Risk Management

    2. Implement Risk Responses

    3. Identify Risks

    4. Perform Qualitative Risk Analysis

 

 

 

Question 7
  • Which one of the following is an example of a hierarchical chart that can be used to show three dimensions of data?

    1. Gantt Chart

    2. RACI chart

    3. Bubble chart

    4. Burndown chart

 

Question 8
  • You have a choice to either purchase or internally develop a software product. The software purchase price is $2 million. If you develop it internally, the added advantage is that you can sell subscriptions in the open market which can be profitable given strong demand.

A strong market (25% possibility) will get you a   net profit of $20 million after subtracting for development expenses. But a weak demand (75% possibility) will result in a net loss of $10 million. What should you do?

  1. There is not enough information to make a decision

  2. You can either build or buy because the expected monetary value is the same in both scenarios.

  3. Purchase the software

  4. Build (internally develop) the software

 

Question 9
  • Your project team has come up with a special type of bar chart, where the data categories are listed vertically, and the largest bar appears at the top of the chart. The team finds that the chart is useful for comparing the relative impact of various variables. What is such as bar chart called?

    1. Histogram

    2. Gantt chart

    3. Inverted bar chart

    4. Tornado diagram

 

AnswerS

ANSWER 1

       The correct answer is Choice 3.

Monte Carlo analysis can be used to mitigate variability risks. The range of variation is reflected in probability distributions. Variability risks are a type of non-event risks, but non- events risks are not the best answer. See Page 399 of the PMBOK.

ANSWER  2

       The correct answer is Choice 1.

Risk breakdown structure (RBS) is a hierarchical representation of the potential sources of risks. It is part of the risk management plan document.   

ANSWER 3 

        The correct answer is Choice 2.

The net path value (NPV) of internally developing the software followed by a weak demand is a loss of $10M. NPV is the total loss or profit (sales minus expenses) for a path assuming that path has occurred. The probability of occurrence is therefore, not a factor in computing the NPV.

ANSWER 4 

       The correct answer is Choice 4.

All the provided choices are true for variability risks. These risks are caused by uncertainties related to project activities or decisions. For example, rainfall will impact the schedule of a construction project. But the amount of rain or schedule delay is not known at the start of the project. The amount of delay will vary. Hence it is a variability risk. See Page 398 of the PMBOK.  

ANSWER 5

        The correct answer is Choice 2.

Exploit is a risk response when the organization wants to make sure that the opportunity is realized and to the maximum extent possible. The objective is to make sure that the opportunity occurs, and value is realized to the maximum value that is possible.

ANSWEr 6 

         The correct answer is Choice 2.

Change requests are an output of the Implement Risk Responses process. In this process, you implement the response plans in the risk register or report. This may lead to change requests to the baselines and other project management plans.

ANSWER 7

       The correct answer is Choice 3.

A bubble chart is used to display three dimensions of data, represented by the X-axis, the Y-axis and the bubble size. See the figure on Page 426 of the PMBOK.

ANSWER 8 

        The correct answer is Choice 3.

Buying the software has a loss of $2M. Building (internally developing) the software has a loss of $2.5M. The correct answer therefore is to buy the software.

 

 

 

 

 

 

 

 

 

In such questions in the exam, you need to:

  1. Draw a decision tree, as shown here,

  2. write the numbers and compute the EMV (expected monetary) for each path, and

  3. Select the path that has a higher profit (if any path is profitable) or least loss (if both paths have losses).

 

There may be a few questions on EMV in the  Exam. Decision tree and EMV estimations are explained on Page 435 of the PMBOK®. 

You may have questions that just ask for NPV (net path value) or EMV for a path. In some cases, the question may have the completed decision tree and you will be asked to identify the EMV or NPV for a path.

ANSWER 9

        The correct answer is Choice 4.

A Tornado chart or diagram is a special type of bar chart, where the data categories are vertical, instead of being horizontal. The longest bar appears on top of the chart. The second longest appears just below that and so on. The completed bar chart appears like a tornado. It is used to identify the most impacting variable on a particular outcome.

This guide is based on the PMBOK 6th Edition® and is meant for PMP® Exams conducted until December 31, 2020