Contingency Planning

Correct Answer: The ratio should align the cost of response with the potential loss value

The optimal ratio between risk impact and allocated response resources should align the cost of response with the potential loss value. This is based on the cost-benefit principle in risk management. Key reasons: - Resources allocated should be proportional to the potential impact - Over-allocation wastes resources that could be used elsewhere - Under-allocation leaves the organization vulnerable - The ratio should be flexible based on risk appetite and organizational context Why other options are incorrect: - A fixed 1:2 ratio is too rigid and fails to account for varying risk contexts - Mandating resources to exceed impact by 1.5 is inefficient and may waste resources - Using only probability for budget determination neglects the crucial impact component of risk assessment

Correct Answer: Reserve allocation should be proportional to potential timeline extensions

Reserve allocation should be proportional to potential timeline extensions because: 1. Risk management best practices require reserves to scale with potential impacts 2. Timeline extensions represent a quantifiable project impact that needs proportional coverage 3. Having proportional reserves ensures adequate resources are available for specific delay scenarios 4. This approach allows for efficient resource utilization while maintaining appropriate risk coverage Other options are incorrect because: - Having reserves exceed all extensions is financially inefficient and ties up unnecessary resources - An inverse relationship would leave projects exposed to risks as timeline extensions grow - Keeping reserves constant despite varying timeline risks fails to account for different risk exposure levels and could lead to inadequate coverage for larger delays or wasteful overallocation for minor extensions

Correct Answer: Analyzing historical data and consulting subject matter experts

Analyzing historical data and consulting subject matter experts is the most effective method for determining trigger point thresholds during contingency plan development for several reasons: 1. Historical data provides real-world evidence and patterns of past events that can inform future thresholds 2. Subject matter experts bring practical experience and domain knowledge to validate and adjust these thresholds 3. The combination of quantitative (historical data) and qualitative (expert judgment) inputs creates a more robust threshold determination The other options are less effective because: - Stakeholder interviews alone may introduce bias and lack the quantitative backing needed for accurate thresholds - Industry standards may be too generic and not specific enough to your project's unique context - Monte Carlo simulations, while useful for other risk analyses, may be overly complex for trigger point determination and require too many assumptions The best approach leverages both empirical evidence from past experiences and expert judgment to set realistic and practical trigger points.