Financial Management for Project Managers Risk Management 3

Question 1

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?

Accepted Answer

$16,000 threat

Answer

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.

Question 2

What is the primary purpose of a risk breakdown structure (RBS) in financial risk management?

Accepted Answer

To categorize risks hierarchically by source to aid identification and analysis

Answer

An RBS organizes risks by category (e.g., technical, external, financial) to ensure comprehensive identification.

Question 3

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:

Accepted Answer

Tornado diagram

Answer

A tornado diagram ranks variables by their sensitivity impact on the output, showing the widest bars for the most influential factors.

Question 4

Which contract type places the greatest financial risk on the buyer (project owner)?

Accepted Answer

Cost plus fixed fee (CPFF)

Answer

Under CPFF, the buyer reimburses all allowable costs plus a fixed fee, so cost overruns are borne entirely by the buyer.

Question 5

When project management reserves are used for unknown-unknown risks, who typically has authority to approve their release?

Accepted Answer

Senior management or the sponsor

Answer

Management reserves for unknown risks are controlled above the project manager level, requiring senior management or sponsor approval.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Risk Management 3