PfMP Certification Portfolio Risk Management 1 — Questions and Answers
Question 1: According to the PMI Standard for Portfolio Management, what is the primary purpose of portfolio risk management?
- To eliminate all risks associated with portfolio components
- To optimize the portfolio's risk exposure in alignment with organizational risk appetite (Correct answer)
- To document all potential threats and assign them to project managers
- To avoid high-risk components and focus only on low-risk initiatives
Correct answer: To optimize the portfolio's risk exposure in alignment with organizational risk appetite
Portfolio risk management aims to optimize risk exposure across the portfolio to align with the organization's risk appetite and strategic objectives, not to eliminate all risk.
Question 2: Which process in portfolio risk management involves examining and prioritizing risks based on their probability and impact on portfolio objectives?
- Risk Identification
- Qualitative Risk Analysis (Correct answer)
- Quantitative Risk Analysis
- Risk Response Planning
Correct answer: Qualitative Risk Analysis
Qualitative risk analysis is the process of prioritizing identified risks using their probability of occurrence and impact on portfolio objectives.
Question 3: A portfolio manager discovers that several components share a common dependency on a single vendor. This situation represents which type of portfolio risk?
- Residual risk
- Secondary risk
- Concentration risk (Correct answer)
- Trigger risk
Correct answer: Concentration risk
Concentration risk occurs when multiple portfolio components share a common dependency, creating a single point of failure that could impact the entire portfolio.
Question 4: What is the primary difference between a risk at the portfolio level versus a risk at the project level?
- Portfolio risks always have higher probability of occurrence
- Portfolio risks affect strategic objectives and multiple components, not just a single initiative (Correct answer)
- Portfolio risks are managed exclusively by the PMO, not the portfolio manager
- Portfolio risks are only financial in nature
Correct answer: Portfolio risks affect strategic objectives and multiple components, not just a single initiative
Portfolio-level risks have the potential to impact strategic objectives and multiple components simultaneously, while project risks are typically scoped to a single initiative.
Question 5: Which risk response strategy involves shifting the negative impact of a risk to a third party?
- Avoid
- Mitigate
- Transfer (Correct answer)
- Accept
Correct answer: Transfer
Risk transfer shifts the negative impact and ownership of a risk to a third party, such as through insurance or outsourcing, though it does not eliminate the risk.
Question 6: In portfolio risk management, what does 'risk appetite' refer to?
- The maximum financial loss an organization can absorb in a single quarter
- The level and types of risk an organization is willing to pursue in order to achieve its objectives (Correct answer)
- The number of high-risk components allowed in the portfolio at any given time
- The threshold at which a risk must be escalated to the executive committee
Correct answer: The level and types of risk an organization is willing to pursue in order to achieve its objectives
Risk appetite is the level and types of risk an organization is willing to accept in pursuit of its strategic goals, and it guides portfolio risk management decisions.
Question 7: A portfolio manager wants to understand the overall effect of uncertainty on portfolio objectives. Which technique is most appropriate?
- SWOT analysis
- Monte Carlo simulation (Correct answer)
- Delphi technique
- Brainstorming
Correct answer: Monte Carlo simulation
Monte Carlo simulation models the combined effect of multiple uncertainties on portfolio outcomes, providing a probability distribution of possible results.
PfMP Certification Portfolio Risk Management 1
According to the PMI Standard for Portfolio Management, what is the primary purpose of portfolio risk management?