Financial Management for Project Managers Risk Management 5 — Questions and Answers
Question 1: A project team uses a 'risk burndown chart' to track:
- The rate at which contingency reserves are being spent
- The reduction in overall risk exposure over the project lifecycle (Correct answer)
- The number of new risks added to the register each week
- The probability scores of the top-10 risks over time
Correct answer: The reduction in overall risk exposure over the project lifecycle
A risk burndown chart visualizes how total risk exposure decreases as risks are resolved or mitigated throughout the project.
Question 2: A project manager is evaluating two options: Option A has an EMV of −$30,000 and Option B has an EMV of −$10,000. Which option should be selected based on EMV alone?
- Option A, because it has a larger magnitude
- Option B, because it has a smaller negative EMV (less expected loss) (Correct answer)
- Neither option; both should be rejected
- The option with the lower probability, regardless of impact
Correct answer: Option B, because it has a smaller negative EMV (less expected loss)
When comparing negative EMVs, the option closest to zero represents the least expected financial loss and is preferred.
Question 3: In financial risk management, 'risk appetite' is BEST defined as:
- The maximum contingency reserve approved by the sponsor
- The amount of risk an organization is willing to accept in pursuit of its objectives (Correct answer)
- The probability threshold above which risks require escalation
- The total EMV of all threats in the risk register
Correct answer: The amount of risk an organization is willing to accept in pursuit of its objectives
Risk appetite describes the level of risk an organization is willing to tolerate before taking action to reduce exposure.
Question 4: Which technique involves interviewing subject matter experts individually rather than in a group to gather unbiased risk identification input?
- Delphi technique (Correct answer)
- Brainstorming
- Root cause analysis
- SWOT analysis
Correct answer: Delphi technique
The Delphi technique uses anonymous, iterative expert surveys to build consensus and avoid groupthink in risk identification.
Question 5: A project is 60% complete with a BAC of $500,000, EV of $300,000, and AC of $360,000. What is the project's Cost Performance Index (CPI), and what does it imply for future financial risk?
- CPI = 1.20; project is under budget with low financial risk
- CPI = 0.83; project is over budget, signaling elevated financial risk (Correct answer)
- CPI = 0.60; project is behind schedule with moderate risk
- CPI = 1.67; project is significantly over budget
Correct answer: CPI = 0.83; project is over budget, signaling elevated financial risk
CPI = EV ÷ AC = $300,000 ÷ $360,000 = 0.833, meaning $1.20 is spent for every $1.00 of work completed — indicating cost overrun risk.
Question 6: A project manager decides to do nothing about a low-probability, low-impact risk but documents it in the risk register for monitoring. This strategy is called:
- Active acceptance
- Passive acceptance (Correct answer)
- Risk avoidance
- Contingent response
Correct answer: Passive acceptance
Passive acceptance means no proactive action is taken; the team simply monitors the risk and responds if it occurs.
Question 7: When a project manager establishes a 'watch list,' it typically contains risks that:
- Have a high probability and high impact requiring immediate response
- Have low priority ratings and need periodic monitoring but no active response (Correct answer)
- Have already been realized and are being tracked for lessons learned
- Are assigned to external vendors and outside project control
Correct answer: Have low priority ratings and need periodic monitoring but no active response
A watch list captures low-priority risks that do not require immediate action but should be reassessed periodically as the project progresses.
Financial Management for Project Managers Risk Management 5
A project team uses a 'risk burndown chart' to track: