Presentations Risk Assessment & Management 5 — Questions and Answers
Question 1: A presenter explains that a risk has been 'accepted' rather than mitigated. Under which condition is risk acceptance MOST appropriate?
- When the cost of mitigation exceeds the expected value of the loss (Correct answer)
- When the risk has a high probability and high impact
- When no stakeholder is aware of the risk's existence
- When the risk has already materialized into an actual incident
Correct answer: When the cost of mitigation exceeds the expected value of the loss
Risk acceptance is appropriate when the cost of mitigating a risk is greater than the potential financial impact of the risk itself.
Question 2: During a risk presentation, a team leader introduces the concept of 'secondary risks.' What are secondary risks?
- New risks that arise as a direct result of implementing a risk response (Correct answer)
- Risks ranked second-highest in probability on the risk register
- Risks identified after the initial risk assessment is completed
- Risks shared between two or more project stakeholders
Correct answer: New risks that arise as a direct result of implementing a risk response
Secondary risks are unintended new risks that emerge specifically because a risk response action was taken.
Question 3: A risk analyst presenting to a board uses a 'tornado diagram.' What type of information does a tornado diagram convey in risk analysis?
- Which input variables have the greatest impact on a model's output (Correct answer)
- The sequence in which risks are expected to occur over time
- The geographic distribution of organizational risk exposure
- The cost breakdown of each risk mitigation initiative
Correct answer: Which input variables have the greatest impact on a model's output
A tornado diagram ranks input variables by their sensitivity impact on an outcome, with the widest bars representing the highest influence.
Question 4: In a project risk presentation, 'risk escalation' refers to which of the following?
- Elevating a risk to a higher management level because it exceeds the team's authority to handle (Correct answer)
- Increasing the probability score of a risk after new information is discovered
- Transferring a risk to an external insurance provider
- Adding more detail to a risk's entry in the risk register
Correct answer: Elevating a risk to a higher management level because it exceeds the team's authority to handle
Risk escalation occurs when a risk is beyond the current team's authority or capacity to manage and must be referred to higher-level decision-makers.
Question 5: A risk presenter highlights 'correlation risk' in a portfolio context. What does correlation risk describe?
- The danger that multiple risks materialize simultaneously because they share common causes (Correct answer)
- The inaccuracy introduced when correlating qualitative and quantitative risk assessments
- The risk of misidentifying which department owns a particular risk
- The uncertainty in probability estimates due to limited historical data
Correct answer: The danger that multiple risks materialize simultaneously because they share common causes
Correlation risk is the danger that assets or risks assumed to be independent move together during a crisis, amplifying overall losses.
Question 6: When presenting a risk-adjusted return, which formula correctly represents the Sharpe Ratio?
- (Portfolio Return − Risk-Free Rate) ÷ Standard Deviation (Correct answer)
- Total Return ÷ Maximum Drawdown
- (Expected Loss × Probability) − Risk-Free Rate
- Net Profit ÷ Value at Risk
Correct answer: (Portfolio Return − Risk-Free Rate) ÷ Standard Deviation
The Sharpe Ratio measures excess return per unit of risk by subtracting the risk-free rate from portfolio return and dividing by standard deviation.
Question 7: A speaker wraps up a risk management presentation by discussing 'lessons learned.' In what phase of the risk management process does this activity primarily occur?
- Risk monitoring and review (Correct answer)
- Risk identification
- Risk response planning
- Risk quantification
Correct answer: Risk monitoring and review
Lessons learned are captured during the monitoring and review phase to improve future risk processes based on what worked and what didn't.
Presentations Risk Assessment & Management 5
A presenter explains that a risk has been 'accepted' rather than mitigated.
Under which condition is risk acceptance MOST appropriate?