Financial Management for Project Managers Risk Management 2

Question 1

A project manager calculates the Expected Monetary Value (EMV) of a risk event with a 30% probability and a $50,000 impact. What is the EMV?

Accepted Answer

$15,000

Answer

EMV = Probability × Impact = 0.30 × $50,000 = $15,000.

Question 2

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

Accepted Answer

Transfer

Answer

Transferring a risk moves the financial consequence to another party (e.g., insurer or contractor) without eliminating the risk itself.

Question 3

A Monte Carlo simulation is used in project financial risk management primarily to:

Accepted Answer

Model the probability distribution of possible project cost outcomes

Answer

Monte Carlo simulation runs thousands of iterations to produce a probability distribution of possible cost or schedule outcomes.

Question 4

When a project team decides to add redundant systems to reduce the likelihood of a technical failure, this is an example of:

Accepted Answer

Risk mitigation

Answer

Adding redundancy reduces the probability or impact of a risk, which is the definition of risk mitigation.

Question 5

A project has a risk reserve of $80,000. After using $30,000 for realized risks, what percentage of the original reserve remains?

Accepted Answer

62.5%

Answer

Remaining reserve = $50,000; $50,000 ÷ $80,000 = 62.5%.

Financial Management for Project Managers Practice Test