Risk Management and Contingency Planning Flashcards

Which risk response strategy involves shifting the financial impact of a risk to a third party, such as through insurance?

Answer: Transfer

Risk transfer moves the financial consequence to another party, commonly via insurance or contractual clauses.

In Monte Carlo simulation for cost estimating, what does the output probability distribution represent?

Answer: The range of possible total project costs with associated probabilities

Monte Carlo simulation produces a probability distribution showing the likelihood of various total cost outcomes.

A CPE identifies that steel price volatility could increase project costs by 12%. This is best classified as which type of risk?

Answer: Market/escalation risk

Commodity price fluctuations like steel pricing fall under market or escalation risk categories.

What is the primary purpose of a risk register in project estimating?

Answer: To document identified risks, their probability, impact, and planned responses

A risk register is the central document cataloging all identified risks along with assessment and response data.

When using the expected value (EV) method, a risk has a 25% probability of occurring and a $200,000 cost impact. What is the expected monetary value?

Answer: $50,000

Expected monetary value = probability × impact = 0.25 × $200,000 = $50,000.

Which contingency approach allocates a lump-sum percentage to the total estimate without itemizing individual risks?

Answer: Deterministic (flat percentage) contingency

Deterministic contingency applies a fixed percentage to the base estimate rather than analyzing discrete risks.

During which phase of a project is the uncertainty cone (cone of uncertainty) at its widest?

Answer: Conceptual/early planning phase

Uncertainty is greatest during conceptual planning when scope definition is minimal, and narrows as design progresses.