CPE Risk Management and Contingency Planning 2 — Questions and Answers
Question 1: Which risk response strategy involves shifting the financial impact of a risk to a third party, such as through insurance?
- Avoidance
- Mitigation
- Transfer (Correct answer)
- Acceptance
Correct answer: Transfer
Risk transfer moves the financial consequence to another party, commonly via insurance or contractual clauses.
Question 2: In Monte Carlo simulation for cost estimating, what does the output probability distribution represent?
- The single most likely project cost
- The range of possible total project costs with associated probabilities (Correct answer)
- The minimum acceptable contingency amount
- The contractor's profit margin range
Correct 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.
Question 3: A CPE identifies that steel price volatility could increase project costs by 12%. This is best classified as which type of risk?
- Schedule risk
- Market/escalation risk (Correct answer)
- Design risk
- Force majeure risk
Correct answer: Market/escalation risk
Commodity price fluctuations like steel pricing fall under market or escalation risk categories.
Question 4: What is the primary purpose of a risk register in project estimating?
- To track contractor bids
- To document identified risks, their probability, impact, and planned responses (Correct answer)
- To record actual cost overruns
- To list project stakeholders
Correct 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.
Question 5: 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?
- $200,000
- $50,000 (Correct answer)
- $25,000
- $175,000
Correct answer: $50,000
Expected monetary value = probability × impact = 0.25 × $200,000 = $50,000.
Question 6: Which contingency approach allocates a lump-sum percentage to the total estimate without itemizing individual risks?
- Probabilistic risk analysis
- Deterministic (flat percentage) contingency (Correct answer)
- Parametric modeling
- Bottom-up risk quantification
Correct answer: Deterministic (flat percentage) contingency
Deterministic contingency applies a fixed percentage to the base estimate rather than analyzing discrete risks.
Question 7: During which phase of a project is the uncertainty cone (cone of uncertainty) at its widest?
- Construction phase
- Commissioning phase
- Conceptual/early planning phase (Correct answer)
- Detailed design phase
Correct answer: Conceptual/early planning phase
Uncertainty is greatest during conceptual planning when scope definition is minimal, and narrows as design progresses.
CPE Risk Management and Contingency Planning 2
Which risk response strategy involves shifting the financial impact of a risk to a third party, such as through insurance?