MEM Risk Management 1 — Questions and Answers
Question 1: In risk management, how is 'risk' commonly defined?
- Any negative event that has already occurred
- The product of the probability of an event and its potential impact (Correct answer)
- The total cost of insurance premiums for a project
- Any deviation from the original project schedule
Correct answer: The product of the probability of an event and its potential impact
Risk is typically quantified as the combination of the likelihood (probability) of an uncertain event occurring and its consequence (impact) if it does occur.
Question 2: What is the difference between a 'risk' and an 'issue' in project management?
- Risks are always financial; issues are always technical
- A risk is a potential future event; an issue is a problem that has already occurred (Correct answer)
- Issues are minor problems; risks are major threats only
- They are synonymous terms used interchangeably
Correct answer: A risk is a potential future event; an issue is a problem that has already occurred
A risk is an uncertain future event that may affect project objectives, while an issue is a risk that has materialized and requires immediate resolution.
Question 3: Which risk response strategy involves transferring the financial consequence of a risk to a third party?
- Risk avoidance
- Risk mitigation
- Risk transfer (Correct answer)
- Risk acceptance
Correct answer: Risk transfer
Risk transfer shifts the financial consequences of a risk to another party, typically through insurance, warranties, or contractual provisions like indemnification clauses.
Question 4: In a risk matrix, a risk rated as 'high probability' and 'high impact' falls into which category?
- Low priority risk
- Medium priority risk
- High priority risk requiring immediate attention (Correct answer)
- Acceptable risk to be monitored passively
Correct answer: High priority risk requiring immediate attention
High-probability, high-impact risks sit in the upper-right quadrant of a risk matrix and require immediate, active mitigation or response planning.
Question 5: What is a 'risk register' in engineering project management?
- A log of financial risks approved by the CFO
- A document that identifies, analyzes, and records responses to project risks (Correct answer)
- A list of all project stakeholders and their risk tolerance
- A regulatory filing required for engineering projects
Correct answer: A document that identifies, analyzes, and records responses to project risks
A risk register is a centralized document that captures identified risks, their probability, impact, ownership, and planned response strategies throughout the project.
Question 6: What does 'risk appetite' refer to in organizational risk management?
- The amount an organization spends on risk management activities
- The level of risk an organization is willing to accept in pursuit of its objectives (Correct answer)
- The speed at which risks are identified and responded to
- The organization's preference for risk transfer over mitigation
Correct answer: The level of risk an organization is willing to accept in pursuit of its objectives
Risk appetite defines the broad level of risk an organization is willing to accept to achieve its strategic goals, guiding decision-making across the enterprise.
MEM Risk Management 1
In risk management, how is 'risk' commonly defined?