Risk Management Flashcards
7 cards from real Financial Management for Project Managers practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management flashcards as text
A project manager is reviewing a risk that has a 20% chance of increasing costs by $100,000 and a 10% chance of saving $40,000. What is the net EMV of these two risk events?
Answer: $16,000 threat
Threat EMV = 0.20 × $100,000 = $20,000; Opportunity EMV = 0.10 × $40,000 = $4,000; Net = $20,000 − $4,000 = $16,000 net threat.
What is the primary purpose of a risk breakdown structure (RBS) in financial risk management?
Answer: To categorize risks hierarchically by source to aid identification and analysis
An RBS organizes risks by category (e.g., technical, external, financial) to ensure comprehensive identification.
A project's sensitivity analysis shows that labor cost overruns have the greatest effect on total project cost. This result is most usefully displayed using a:
Answer: Tornado diagram
A tornado diagram ranks variables by their sensitivity impact on the output, showing the widest bars for the most influential factors.
Which contract type places the greatest financial risk on the buyer (project owner)?
Answer: Cost plus fixed fee (CPFF)
Under CPFF, the buyer reimburses all allowable costs plus a fixed fee, so cost overruns are borne entirely by the buyer.
When project management reserves are used for unknown-unknown risks, who typically has authority to approve their release?
Answer: Senior management or the sponsor
Management reserves for unknown risks are controlled above the project manager level, requiring senior management or sponsor approval.
A project manager discovers that a vendor's financial instability creates a risk of contract default. The BEST initial response is to:
Answer: Conduct a qualitative risk assessment and add the risk to the risk register
The first step is to formally assess and document the risk before deciding on a response strategy.
In decision tree analysis, the 'decision node' (square) represents:
Answer: A choice the project team must make among alternatives
Square nodes in a decision tree represent decision points where the team selects among available options.