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Project Management 2016 - Pinto - Quiz - Chapter 7

MBA Project Management

PROJECT MANAGEMENT 2016

Case study guides and online resources (2016)

Project Management: Achieving Competitive Advantage, 4th Edition, 2016, Jeffrey K. Pinto

 

 

 

Project Management: Achieving Competitive Advantage, 4e (Pinto)

Chapter 7   Risk Management

 

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

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

Answer:  A

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

2) Project risk is highest during the:

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

 

Answer:  B

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

3) Project risk is lowest during the:

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

Answer:  C

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

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

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

Answer:  D

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

5) The greatest project risk occurs when:

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

Answer:  A

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Application

AACSB:  Analytical Thinking

 

6) The greatest project opportunity occurs when:

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

Answer:  A

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

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

  1. A) Implementation phase.
  2. B) Development phase.
  3. C) Concept phase.
  4. D) Termination phase.

Answer:  D

Diff: 2

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

8) Risk and opportunity:

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

Answer:  C

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

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:

  1. A) High in consequence and high in probability.
  2. B) Low in consequence and low in probability.
  3. C) Low in probability and high in consequence.
  4. D) High in probability and low in consequence.

Answer:  C

Diff: 2

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Application

AACSB:  Application of Knowledge

 

 

10) 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:

  1. A) High in consequence and high in probability.
  2. B) Low in consequence and low in probability.
  3. C) Low in probability and high in consequence.
  4. D) High in probability and low in consequence.

Answer:  D

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

11) 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:

  1. A) High in consequence and high in probability.
  2. B) Low in consequence and low in probability.
  3. C) Low in probability and high in consequence.
  4. D) High in probability and low in consequence.

Answer:  A

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

Answer:  TRUE

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

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

Answer:  TRUE

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

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

Answer:  FALSE

Diff: 1

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

Answer:  TRUE

Diff: 2

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Application

AACSB:  Analytical Thinking

 

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

Answer:  Risk is at its highest during a project's concept phase, falling off gradually during development phase and reduces dramatically during implementation and termination phases. At project completion, risk is at its nadir. Risk is highest at the start of a project because uncertainty is high; what may be a clear vision in the customer's and project leader's minds is far from realization. Questions are answered and uncertainties resolved as the project progresses, but the amount at stake, as measured in man hours of labor, materials, and other expenses, rises. The period of highest risk impact is late in a project's life; while risk itself is lower, the amount at stake is much higher, and until the project is finished and accepted there is potential for a poor finish. Since one important criterion of project success is customer acceptance, the risk impact remains high to the end.

Diff: 2

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Application

AACSB:  Application of Knowledge

 

17) 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.

Answer:  Examples will vary; the graph from figure 7.2 appears below.

 

Diff: 2

Section:  7.0 Introduction

LO:  7.1: Define project risk.

Classification:  Application

AACSB:  Application of Knowledge

 

18) Risk management is a:

  1. A) Three-stage process.
  2. B) Four-stage process.
  3. C) Five-stage process.
  4. D) Six-stage process.

Answer:  B

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.2: Recognize four key stages in project risk management and the steps necessary to manage risk.

Classification:  Concept

AACSB:  Application of Knowledge

 

19) 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:

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

Answer:  B

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.2: Recognize four key stages in project risk management and the steps necessary to manage risk.

Classification:  Application

AACSB:  Application of Knowledge

 

20) 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:

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

Answer:  C

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.2: Recognize four key stages in project risk management and the steps necessary to manage risk.

Classification:  Application

AACSB:  Application of Knowledge

 

 

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:

  1. A) Political risk.
  2. B) Operating risk.
  3. C) Organizational risk.
  4. D) Integration risk.

Answer:  D

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.2: Recognize four key stages in project risk management and the steps necessary to manage risk.

Classification:  Application

AACSB:  Application of Knowledge

22) 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:

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

Answer:  C

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.2: Recognize four key stages in project risk management and the steps necessary to manage risk.

Classification:  Application

AACSB:  Application of Knowledge

 

23) A serious risk factor probably has:

  1. A) A high consequence and a medium likelihood.
  2. B) A high consequence and a low likelihood.
  3. C) A medium consequence and a low likelihood.
  4. D) A low consequence and a medium likelihood.

Answer:  A

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.2: Recognize four key stages in project risk management and the steps necessary to manage risk.

Classification:  Application

AACSB:  Application of Knowledge

 

 

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

Answer:  The four distinct steps of systematic risk management are:

Risk identification — the process of determining the specific risk factors that can reasonably be expected to affect the project.

Analysis of probability and consequences — the potential impact of these risk factors is determined by how likely they are to occur and the effect they would have on the project if they did occur.

Risk mitigation strategies — steps taken to minimize the potential impact of these risk factors deemed sufficiently threatening to the project.

Control and documentation — creating a knowledge base for future projects based on lessons learned.

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.2: Recognize four key stages in project risk management and the steps necessary to manage risk.

Classification:  Application

AACSB:  Application of Knowledge

25) 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:

  1. A) Commercial risk.
  2. B) Execution risk.
  3. C) Financial risk.
  4. D) Technical risk.

Answer:  D

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Application of Knowledge

 

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

  1. A) A brainstorming meeting.
  2. B) The Delphi method.
  3. C) Past history.
  4. D) Multiple assessments.

Answer:  B

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

  1. A) A brainstorming meeting.
  2. B) The Delphi method.
  3. C) Past history.
  4. D) Multiple assessments.

Answer:  A

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

  1. A) A brainstorming meeting.
  2. B) The Delphi method.
  3. C) Past history.
  4. D) Multiple assessments.

Answer:  C

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

29) 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:

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

Answer:  D

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Application of Knowledge

 

 

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

  1. A) Financial risk
  2. B) Cost estimate risk.
  3. C) Market risk.
  4. D) Promotion risk.

Answer:  A

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

  1. A) Technical risk.
  2. B) Cost estimate risk.
  3. C) Financing risk.
  4. D) Operating risk.

Answer:  B

Diff: 3

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

  1. A) Promotion risk.
  2. B) Political risk.
  3. C) Organizational risk.
  4. D) Financial risk.

Answer:  A

Diff: 3

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

33) 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:

  1. A) Promotion risk.
  2. B) Market risk.
  3. C) Organizational risk.
  4. D) Financial risk.

Answer:  B

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Application of Knowledge

 

34) 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:

  1. A) Financial risk.
  2. B) Promotion risk.
  3. C) Cost estimate risk.
  4. D) Market risk.

Answer:  D

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Application of Knowledge

 

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

  1. A) Operating risk.
  2. B) Political risk.
  3. C) Organizational risk.
  4. D) Integration risk.

Answer:  C

Diff: 3

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

  1. A) Political risk.
  2. B) Operating risk.
  3. C) Organizational risk.
  4. D) Integration risk.

Answer:  A

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

  1. A) Volume market risk.
  2. B) Price market risk.
  3. C) Integration risk.
  4. D) Schedule risk.

Answer:  D

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

38) 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:

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

Answer:  C

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

 

 

39) 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:

  1. A) About 0.3.
  2. B) About 0.4.
  3. C) About 0.5.
  4. D) About 0.6.

Answer:  B

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

40) 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:

  1. A) 0.23.
  2. B) 0.33.
  3. C) 0.65.
  4. D) 0.70.

Answer:  A

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

 

41) 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?

  1. A) 0.2
  2. B) 0.3
  3. C) 0.4
  4. D) 0.5

Answer:  C

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

 

 

42) 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:

  1. A) 0.565 for the squidproofing project.
  2. B) 0.500 for the squidproofing project.
  3. C) 0.750 for the squidproofing project.
  4. D) 0.625 for the squidproofing project.

Answer:  D

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

 

43) 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?

  1. A) 0.091
  2. B) 0.107
  3. C) 0.123
  4. D) 0.136

Answer:  B

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

44) 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?

 

Maturity

0.7

Cost

0.4

Complexity

0.6

Schedule

0.6

Dependency

0.8

Reliability

0.8

 

 

Performance

0.9

  1. A) Less than or equal to 0.7
  2. B) Greater than 0.7 but less than or equal to 0.8
  3. C) Greater than 0.8 but less than or equal to 0.9
  4. D) Greater than 0.9

Answer:  D

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

 

45) 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?

 

Maturity

X

Cost

Y

Complexity

X

Schedule

Y

Dependency

X

Reliability

Y

 

 

Performance

Y

  1. A) 0.316
  2. B) 0.267
  3. C) 0.236
  4. D) 0.347

Answer:  C

Diff: 3

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

46) 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?

 

Maturity

X

Cost

Y

Complexity

2X

Schedule

2Y

Dependency

4X

Reliability

4Y

 

 

Performance

8Y

  1. A) 0.026
  2. B) 0.033
  3. C) 0.041
  4. D) 0.048

Answer:  A

Diff: 3

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

 

 

47) 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?

 

Maturity

X

Cost

Y

Complexity

2X

Schedule

2Y

Dependency

4X

Reliability

4Y

 

 

Performance

8Y

  1. A) 0.213
  2. B) 0.197
  3. C) 0.104
  4. D) 0.148

Answer:  D

Diff: 3

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

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

 

Maturity

0.6

Cost

0.2

Complexity

0.8

Schedule

0.3

Dependency

0.6

Reliability

0.2

 

 

Performance

0.5

  1. A) Greater than 0.7
  2. B) Less than or equal to 0.7 but greater than 0.5
  3. C) Less than or equal to 0.5 but greater than 0.3
  4. D) Less than 0.2

Answer:  A

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Analytical Thinking

 

 

49) 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.

Answer:  TRUE

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

Answer:  FALSE

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Concept

AACSB:  Application of Knowledge

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

Answer:  Risks commonly fall into one or more of the following classification clusters:

Financial risk refers to the financial exposure a firm opens itself up to when developing a project. — Up-front capital expenditures are at risk in any project.

Technical risk emerges when a project contains unique technical elements or new and unproven technology.

Commercial risk must be handled when a project is being developed for definite commercial intent since success in the marketplace is never guaranteed.

Execution risk is a broad category relating to the unknowns associated with the project plan being carried out.

Contractual or legal risk is consistent with projects in which strict terms and conditions, such as liquidated damages or cost-plus, have been drawn up in advance.

Staffing risks include events such as absenteeism, resignation, failure to secure needed skills, and ineffective training.

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Application of Knowledge

 

 

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

Answer:  A number of qualitative methods are available for conducting risk factor identification for industry specific risks. A brainstorming meeting is valuable for bringing a team together and generating many ideas quickly. If one member dominates a brainstorming meeting or members pass judgment on ideas as they are generated, such a meeting may be less valuable. The Delphi method collects expert opinions anonymously in two or more rounds of questions posed by an expert. There is no "in-the-moment" synergy among experts unless a real-time decision support system is being used, but there is also little chance of a single member dominating the proceedings. The Delphi method would also suffer if the experts were unable to articulate their methods or if the moderator screened out an idea that might have triggered additional thoughts. The "experience counts" approach looks for individuals in the organization that have had similar project experiences and seeks their input with regards to "lessons learned" and risks anticipated. This method is less formal and the lack of structure may result in less knowledge transfer, but it permits great richness of observations. Past history examines patterns that have emerged prior to problems in previous projects. This technique is appropriate if the same underlying causal structure is assumed to exist, but there is no guarantee that history is a reliable predictor of the future. Multiple (or team-based) assessments bring together a diverse group of team members that specialize in different aspects of the project and therefore have a different perspective on potential risks. This approach encourages identification of a comprehensive set of risks but carries with it the pitfalls that accompany any group discussion exercise.

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Application of Knowledge

 

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

Answer:  A risk management assessment matrix, as shown below, classifies identified risks into one of four quadrants on two scales, the likelihood that the risk occurs and the consequences of the occurrence.

 

 

A risk designated as low in likelihood and low in consequence may be of little consequence to the project; even if it occurs, it has little impact. A risk low in likelihood but high in consequence is one that must be accommodated; if it does occur it will wreak havoc on budget, schedule, satisfaction, or quality (or all four). A risk that is high in likelihood but low in consequence should be managed as if it will occur and should receive significant contingency planning. A risk that is high in likelihood and consequence is very serious, and merits serious consideration in the form of contingency planning and mitigation efforts.

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Application

AACSB:  Application of Knowledge

 

54) 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?

Answer:  The overall project risk factor is 0.5725, perhaps too risky for Garman and his henchman.

 

PF = (PE + PM + PH)/3 = (0.6 + 0.2 + 0.3)/3 = 0.3

CF = (CC + CS + CR + CG)/4 = (0.2 + 0.4 + 0.1 + 0.6)/4 = 0.325

 

RF = PF + CF - PFCF

RF = 0.3 + 0.325 - 0.3 × 0.325

RF = 0.5725

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Critical Thinking

AACSB:  Analytical Thinking

 

 

55) 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?

Answer:  The overall project risk factor is 0.5725, perhaps too risky for Garman and his henchman.

 

Pf =

Pe = Pm = Ph

 

Cf =

Cc = Cs = Cf = Cp

 

2Cf = Pf 

 

Rf = Pf + Cf - Pf Cf

 

0.6 = Pf +  - Pf

0.6 = Pf +  -

 

Pf =

 

Pf =  ±

Pf = (0.475, 2.52)

 

Since probabilities cannot exceed 1, the Pf = 0.475 and the Pe, Pm and Ph must also equal that value. The Cc, Cs, Cr and Cp must be half that amount, 0.237.

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Critical Thinking

AACSB:  Analytical Thinking

 

56) 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.

Answer:  The probability of failure categories are maturity, complexity and dependency. The consequence of failure categories are cost, schedule, reliability, and performance. One approach to organizing this type of information is a risk impact matrix. As far as probability of failure categories are concerned, the maturity of the design — whether it is based on an existing submarine configuration or a new design, how complex the craft will be, and whether the submarine is a departure from the project team's area of expertise would influence probability assessments. Consequence impacts are shaped by the nature of the failure — an underwater vessel would likely have extremely high consequences of failure.

Diff: 3

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Critical Thinking

AACSB:  Reflective Thinking

 

 

57) 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.

Answer:  Using the high estimate for the performance score, the overall project risk factor is 0.71. Using the low estimate for the performance score, the overall risk factor is 0.655. The difference between the two values is minimal, although the rule of thumb cutoff of 0.7 puts the high estimate risk category as high and the low estimate at the upper end of the medium risk. Dilbert might be well-served to avoid a study tour to Elbonia.

 

High Estimate

Cf = (Cc + Cs + Cr + Cp)/4

Cf = (0.2 + 0.1 + 0.1 + 0.7)/4

Cf = 1.1/4 = 0.275

 

Low Estimate

Cf = (Cc + Cs + Cr + Cp)/4

Cf = (0.2 + 0.1 + 0.1 + 0.15)/4

Cf = 0.55/4 = 0.1375

 

Overall High

RF = Pf + Cf - PfCf

RF = 0.6 + 0.275 - 0.6 × 0.275

RF = 0.71

 

Overall Low

RF = Pf + Cf - PfCf

RF = 0.6 + 0.275 - 0.6 × 0.275

RF = 0.655

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Critical Thinking

AACSB:  Analytical Thinking

 

58) 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?

Answer:  The risk factor for complexity (as well as the other six components) should be 0.2928932.

 

Cf = (Cc + Cs + Cr + Cp)/4

Pf = (Pm + Pc + Pd)/3

Cc = Cs = Cr = Cp = Pm = Pc = Pd

let x = Cc = Cs = Cr = Cp = Pm = Pc = Pd

RF = Pf + Cf - PfCf

RF = x + x - x2 = 0.5

x2 - 2x + .5 = 0

x =

x = (1.707, 0.2928)

 

Since the probabilities must range between 0 and 1, the only possible answer is 0.2928.

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.3: Understand five primary causes of project risk and four major approaches to risk identification.

Classification:  Critical Thinking

AACSB:  Analytical Thinking

 

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

  1. A) Minimize it.
  2. B) Share it.
  3. C) Transfer it.
  4. D) Accept it.

Answer:  D

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Application of Knowledge

 

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

  1. A) Accept risk.
  2. B) Minimize risk.
  3. C) Share risk.
  4. D) Transfer risk.

Answer:  B

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Application of Knowledge

 

61) 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:

  1. A) Accept risk.
  2. B) Minimize risk.
  3. C) Transfer risk.
  4. D) Share risk.

Answer:  C

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Application of Knowledge

 

62) 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:

  1. A) Accept the risk.
  2. B) Minimize the risk.
  3. C) Transfer the risk.
  4. D) Share the risk.

Answer:  A

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Application of Knowledge

 

 

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

  1. A) Liquidated damages.
  2. B) Milestone adjustments.
  3. C) Contingency clauses.
  4. D) Penalty points.

Answer:  A

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

64) 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:

  1. A) A rainy day fund.
  2. B) A contingency reserve.
  3. C) An escalation clause.
  4. D) A sinking fund.

Answer:  B

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

 

65) 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):

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

Answer:  C

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Application of Knowledge

 

 

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

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

Answer:  D

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Analytical Thinking

67) 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:

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

Answer:  A

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Analytical Thinking

 

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

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

Answer:  B

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

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

  1. A) CYA factors.
  2. B) Buffer stocks.
  3. C) Managerial contingency.
  4. D) Task offsets.

Answer:  C

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

 

70) A common use of managerial contingency funds would be for:

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

Answer:  D

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

71) 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:

  1. A) Mentoring.
  2. B) Cross-training.
  3. C) Supervising.
  4. D) Interning.

Answer:  A

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

72) 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:

  1. A) Mentoring program.
  2. B) Cross-training program.
  3. C) Duplication program.
  4. D) Featherbedding program.

Answer:  B

Diff: 1

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Application of Knowledge

 

73) One approach to risk mitigation is simply to accept it.

Answer:  TRUE

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

Answer:  FALSE

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

 

75) 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.

Answer:  TRUE

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

76) The highest dollar value of reserves is typically task contingency.

Answer:  FALSE

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Concept

AACSB:  Application of Knowledge

 

77) 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?

Answer:  The four possible alternatives a project organization can adopt in deciding how to address their risks are:

Accept risk — Risks of a minor nature are probably present in a matter of course, but because their likelihood and or consequence are so small, they are deemed acceptable and are worth little to no attention because the expense outweighs the benefit.

Minimize risk — Strategies to minimize risk seek ways to prevent risks from occurring or to minimize impact if they do occur.

Share risk — Risk can be allocated among project members, either subcontractors, or different departments, or between customer and project organization. The risk that is evenly distributed will lessen the burden on any one player, but contracts are best signed up front to minimize the amount of finger-pointing that occurs once the risk is realized.

Transfer risk — Transfer of risk is done contractually; the benefit to the transferring party is that the risk is no longer theirs, although this lightened burden comes at some expense.

The best approach depends on the risk involved and the mindset of the project organization. Minimal risk should be handled with acceptance; more serious risk can be handled with acceptance or some other means depending on the resources the company can bring to bear.

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Critical Thinking

AACSB:  Reflective Thinking

 

78) 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.

Answer:  The four possible alternatives a project organization can adopt in deciding how to address their risks are to accept risk, minimize risk, share risk, and transfer risk. Scenarios are limited only by the bounds of your students' imaginations, but as a general rule, the motivation for each strategy are outlined below.

Accept risk — Risks of a minor nature are probably present in a matter of course, but because their likelihood and or consequence are so small, they are deemed acceptable and are worth little to no attention because the expense outweighs the benefit.

Minimize risk — Strategies to minimize risk seek ways to prevent risks from occurring or to minimize impact if they do occur.

Share risk — Risk can be allocated among project members, either subcontractors, or different departments, or between customer and project organization. The risk that is evenly distributed will lessen the burden on any one player, but contracts are best signed up front to minimize the amount of finger-pointing that occurs once the risk is realized.

Transfer risk — Transfer of risk is done contractually; the benefit to the transferring party is that the risk is no longer theirs, although this lightened burden comes at some expense.

The best approach depends on the risk involved and the mindset of the project organization. Minimal risk should be handled with acceptance; more serious risk can be handled with acceptance or some other means depending on the resources the company can bring to bear.

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Critical Thinking

AACSB:  Reflective Thinking

 

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

Answer:  Both are financial incentives, although the latter functions more as a stick than the (somewhat limited) carrot of the former. Fixed price contracts establish a price for the project before work begins. If the project encounters difficulty, the costs of completion are borne by the project organization. Liquidated damages are penalty clauses that are automatically activated at milestones in the project's development and implementation. The project organization is again on the hook for these penalties.

Diff: 2

Section:  7.1 Risk Management: A Four-Stage Process

LO:  7.4: Recognize four primary risk mitigation strategies.

Classification:  Application

AACSB:  Application of Knowledge

 

80) 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:

  1. A) EAPM-RM.
  2. B) RMEAPM.
  3. C) ERM.
  4. D) PRAM.

Answer:  D

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

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

Answer:  A

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

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

Answer:  A

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

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

Answer:  B

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

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

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

Answer:  C

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

85) At each phase, the project risk analysis and management program should produce:

  1. A) Alternatives.
  2. B) A budget.
  3. C) Deliverables.
  4. D) Meetings.

Answer:  C

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

86) One phase of the project risk analysis and management program is concerned more with the project than the management of risk. The latter is facilitated by successful completion of this step, but not the focal point. This phase in the project risk analysis and management program is:

  1. A) Estimate.
  2. B) Define.
  3. C) Focus.
  4. D) Manage.

Answer:  B

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

87) The first phase of a comprehensive project risk assessment should be:

  1. A) To assess the specific sources of risk at the outset of the project, including the need to fashion appropriate responses.
  2. B) To make sure the project is well defined, including all deliverables, statement of work, and project scope.
  3. C) To develop reasonable estimates of the impacts on the project of both the identified risks and the proposed solutions.
  4. D) To produce a project risk management plan that proactively offers risk mitigation strategies for the project as needed.

Answer:  B

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

88) The PRAM methodology contains an embedded feedback loop after which step?

  1. A) Focus
  2. B) Plan
  3. C) Evaluate
  4. D) Identify

Answer:  C

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

89) The PRAM step that occurs while the project work is being carried out is:

  1. A) Ownership.
  2. B) Identify.
  3. C) Focus.
  4. D) Manage.

Answer:  D

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

90) The tasks of reviewing and refining the manner in which we have classified risks for the project, determining if there are commonalities across the various risks we have uncovered are performed in the ________ of the project risk analysis and management model.

  1. A) structure step
  2. B) ownership step
  3. C) define step
  4. D) plan step

Answer:  A

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

91) The deliverable from the focus step of the project risk analysis and management model is:

  1. A) A clear, unambiguous, shared understanding of all key aspects of the project documented, verified, and reported.
  2. B) A clear, unambiguous, shared understanding of all relevant key aspects of the RMP documented, verified, and reported.
  3. C) A clear understanding of the implications of any important simplifying assumptions about relationships between risks, responses and base plan activities.
  4. D) Clear ownership and management allocations, effectively and efficiently defined, legally enforceable in practice where appropriate.

Answer:  B

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

92) The PRAM model for risk management proposes that risk management follow a life cycle much as projects follow a life cycle.

Answer:  TRUE

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

93) The PRAM model for risk management proposes different risk management strategies be deployed at various points in the project life cycle.

Answer:  TRUE

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

94) The PRAM model for risk management proposes a "pick and choose" approach to risk management.

Answer:  FALSE

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

95) PRAM (project risk analysis and management) should be conducted as a "one-shot" activity during the project planning phase.

Answer:  FALSE

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

96) Every one of the nine phases of the PRAM methodology has a deliverable.

Answer:  TRUE

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

97) What are the two types of contingency reserves and how are they handled?

Answer:  Contingency reserves in financial and managerial forms are among the most common methods used to mitigate project risks. Task contingency, perhaps the most common form of contingency reserve, is used to offset budget cutbacks, schedule overruns, or other unforeseen circumstances accruing to individual tasks or project work packages. These budget reserves are used if work packages cannot be estimated with certainty or if required contractually. An offset of 20% means that a project will be built to a cost of 20% less than called for in the contract, with the 20% held in case a contingency arises. Managerial contingency means having budget safety measures that address higher level risks, such as a client requesting a dramatically altered scope.

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Application

AACSB:  Application of Knowledge

98) How do mentoring and cross-training mitigate risk?

Answer:  Mentoring and cross-training are two approaches to risk minimization that train project team members. A mentoring program pairs junior or inexperienced project managers with senior managers in order to help them learn best practices. This approach mitigates risk by easing the junior members into new duties with a senior member that can answer questions and clarify problems as they get their feet wet in the project organization. Cross-training requires that members of the project team learn not only their own duties but also the roles that other team members are expected to perform. Cross-training addresses more immediate needs; if a member is pulled away for some time, the cross-trained member can fill in as needed.

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Application

AACSB:  Application of Knowledge

 

99) What does change management accomplish and what are the components of an effective change management program?

Answer:  Change management is a part of a risk mitigation strategy. As the project organization responds to risks that are realized, the risk management plan is enacted and changes become necessary responses to deliver the project. The change management plan contains provisions for documentation of the changes including a description of the risk, its assessment, and the reduction plan. The change management plan addresses the who, what, when, why, and how of the changes to the baseline project plan.

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

100) Sketch a flow chart for the PRAM methodology for risk management and briefly describe each step.

Answer: 

Define — Make sure the project is well-defined, including all deliverables, statement of work, and scope.

Focus — Begin to plan the risk management process as a project in its own right, as well as determining the best methods for addressing project risk.

Identify — Assess the specific sources of risk including the need to fashion appropriate responses.

Structure — Review and refine the manner in which risks have been classified, determine if commonalities exist among risks.

Clarify ownership — Distinguish between risks the project organization is willing to handle and those the clients are expected to.

Estimate — Develop reasonable estimates of the impacts on the project of the risks and proposed solutions.

Evaluate — Critically evaluate the results of the estimate phase; prioritize risks.

Plan — Produce a risk management plan that proactively offers risk mitigation strategies for the project as needed.

Manage — Monitor actual progress with the project and associated risk management plans.

 

 

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

101) What is the PRAM methodology and what are its salient features?

Answer:  The PRAM (Project Risk Analysis and Management) program is a creation of the European Association for Project Management. PRAM is an integrated program of risk management, based on efforts to extend risk management to cover a project's entire life cycle. The PRAM model offers a systematic approach to creating a comprehensive and logically sequenced method for analyzing and addressing project risk. The key features of the PRAM methodology are:

— recognition that risk management follows its own life cycle and must be integrated throughout the project's entire life cycle,

— application of different risk management strategies at various points in the life cycle,

— integration of multiple approaches to risk management into a coherent, synthesized approach.

Diff: 2

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

102) Pick any three steps in the PRAM methodology and explain the deliverables generated by that step.

Answer:  The PRAM (Project Risk Analysis and Management) methodology has nine steps. The deliverables for each of these steps are as follows:

Define — a clear unambiguous, shared understanding of all key aspects of the project documented, verified, and reported.

Focus — a clear, unambiguous, shared understanding of all relevant key aspects of the RMP, documented, verified, and reported.

Identify — all key risks and responses identified; both threats and opportunities classified, characterized, documented, verified, and reported.

Structure — a clear understanding of the implications of any important simplifying assumptions about relationships among risks, responses, and base plan activities.

Ownership — clear ownership and management allocations effectively and efficiently defined, legally enforceable in practice where appropriate.

Estimate — 1) a basis for understanding which risks and responses are important; and 2) estimates of likelihood and impact on scenario or in numeric terms.

Evaluate — diagnosis of all important difficulties and comparative analysis of the implications of responses to these difficulties, with specific deliverables like a prioritized list of risks.

Plan — 1) base plans in activity terms at the detailed level of implementation; 2) risk assessment in terms of threats and opportunities prioritized, assessed in terms of impact; and 3) recommended proactive and reactive contingency plans in activity terms.

Manage — 1) diagnosis of a need to revisit earlier plans and initiation of replanning as appropriate, and 2) exception reporting after significant events and associated replanning.

Diff: 3

Section:  7.2 Project Risk Management: An Integrated Approach

LO:  7.5: Explain the Project Risk Analysis and Management (PRAM) process.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

 

 

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