Project Risk Management Quantitative Risk Analysis 5 — Questions and Answers
Question 1: A project team sets a contingency reserve at the P70 level from simulation results. What risk remains unaddressed by this reserve?
- The 30% of scenarios that exceed the P70 estimate (Correct answer)
- All identified risks not yet analyzed quantitatively
- Risks with a probability below 10%
- Secondary risks triggered by risk responses
Correct answer: The 30% of scenarios that exceed the P70 estimate
A P70 reserve covers 70% of simulated scenarios; the remaining 30% of worse outcomes are not covered and would require management reserve or escalation.
Question 2: What is 'risk exposure' in the context of quantitative risk analysis?
- The total expected monetary impact across all quantified risks (Correct answer)
- The percentage of the project budget allocated to contingency
- The number of risks identified in the risk register
- The maximum possible loss on the project
Correct answer: The total expected monetary impact across all quantified risks
Risk exposure aggregates the expected monetary values of all quantified risks to represent the overall financial impact the project faces.
Question 3: Which technique helps a project manager understand how variability in one input variable affects the overall project outcome, holding all other variables constant?
- Sensitivity analysis (Correct answer)
- Monte Carlo simulation
- Decision tree analysis
- Expected Monetary Value analysis
Correct answer: Sensitivity analysis
Sensitivity analysis varies one input at a time while keeping others fixed, isolating that variable's contribution to overall output variability.
Question 4: A sponsor asks why the quantitative risk analysis result differs from the deterministic project estimate. What is the best explanation?
- Quantitative analysis models uncertainty ranges, producing a probability distribution rather than a single point estimate (Correct answer)
- Quantitative analysis is less accurate because it relies on simulation
- The deterministic estimate includes contingency; quantitative analysis does not
- Quantitative analysis only considers threats, not opportunities
Correct answer: Quantitative analysis models uncertainty ranges, producing a probability distribution rather than a single point estimate
Deterministic estimates use single-point values, while quantitative analysis replaces those points with probability distributions, revealing the range of possible outcomes.
Question 5: A project team uses an influence diagram as part of quantitative risk analysis. What does an influence diagram depict?
- Causal relationships and dependencies among project variables, decisions, and uncertainties (Correct answer)
- The ranked priority of risks by probability and impact
- The organizational structure responsible for risk management
- The flow of risk information through the project lifecycle
Correct answer: Causal relationships and dependencies among project variables, decisions, and uncertainties
An influence diagram is a graphical representation showing how decisions, uncertainties, and outcomes are causally related and interdependent.
Question 6: Which statement about Monte Carlo simulation iterations is correct?
- More iterations produce a more stable and reliable output distribution (Correct answer)
- Fewer iterations are preferred to reduce computation time without loss of accuracy
- The number of iterations does not affect the simulation results
- 100 iterations are sufficient for any project risk simulation
Correct answer: More iterations produce a more stable and reliable output distribution
Increasing the number of iterations reduces sampling error and stabilizes the output distribution, with most practitioners using 1,000–10,000+ iterations.
Question 7: A project has two independent risk opportunities, each with a 30% probability of saving $40,000. What is the combined EMV of both opportunities?
- $24,000 (Correct answer)
- $12,000
- $80,000
- $40,000
Correct answer: $24,000
EMV of each opportunity = 0.30 × $40,000 = $12,000; combined EMV of two independent opportunities = $12,000 + $12,000 = $24,000.
Project Risk Management Quantitative Risk Analysis 5
A project team sets a contingency reserve at the P70 level from simulation results.
What risk remains unaddressed by this reserve?