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Project Risk Management

5 minutes 5 Questions

Project Risk Management is the process of identifying, analyzing, and responding to any risk that arises over the life cycle of a project to help the project remain on track and meet its goal. Risk management is a proactive process that helps to identify all the potential risks that might impact the project negatively. It includes processes of risk management planning, risk identification, qualitative risk analysis, quantitative risk analysis, risk response planning, and risk monitoring and control.

Guide: Understanding Project Risk Management

Project Risk Management is an integral part of CAPM (Certified Associate in Project Management) which is involved throughout entire project cycle.
Why is it Important? The management of risk is vital as it helps prevent project failure, enables realistic budgeting and Schedule baselining. It facilitates well planned and well informed project decisions.
What is Project Risk Management? It is the process of identifying, analyzing and considering uncertainties during the project planning and execution. This process helps the project manager to anticipate possible obstacles and devise strategies to mitigate them.
How It Works? Steps involved: 1. Risk Identification 2. Risk Analysis 3. Risk Evaluation 4. Risk Mitigation and 5. Risk Reviewing.
How to Answer Questions on Project Risk Management in an Exam: Be careful to understand the core components of project risk management and use relevant terminology. Provide examples to illustrate your points where possible.
Exam Tips: Always include a brief explanation of why the particular risk management strategy is appropriate for the given scenario. Also, understand that every project could have different types of risks, thus use a versatile approach in answering. Use 'risk register' for explaining, as its a key component of risk management. When you are asked about risk response strategies, make sure to elaborate and distinguish between risk avoidance, risk transference, risk mitigation, risk acceptance and risk escalation. Remember, your high-level knowledge of risk management processes will be the key to answer these questions.

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CAPM - Project Life Cycle Example Questions

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Question 1

While managing a construction project, you have identified a risk of a potential increase in the price of raw materials. What is the first step you should take as a project manager?

Correct Answer: Add it to the risk register and analyze the possible impact

The first step when identifying a risk in managing a construction project is to add it to the risk register and analyze its possible impact. This is because the risk register is a tool used to identify, assess and track risks. This would provide an insight on how it could potentially affect the project, both positively or negatively. Ignoring the risk is not a good option, it is the project manager's responsibility to manage all identified risks. Informing all stakeholders immediately, without developing a contingency plan, is not the best course of action, because the stakeholders would be expecting solutions or mitigation plans, rather than just learning about the risk. Buying all the materials needed for the project and increasing the pre-set budget is also not advisable as it could lead to an unnecessary overspend, and might not provide a cost-effective solution to the identified risk.

Question 2

A severe risk has occurred on your high-priority project but your team was unprepared as it was not identified during the risk identification process. As the project manager, what should be your immediate response?

Correct Answer: Activate the contingency plan while simultaneously initiating root cause analysis.

The best course of action when a severe risk has occurred on your high-priority project and your team was unprepared is to activate the contingency plan while simultaneously initiating root cause analysis. This is because the contingency plan is designed to handle unexpected situations that arise during a project, allowing the team to continue the project as best as possible while also figuring out what caused the situation in the first place. Delaying the project until a solution is found wastes time and resources, and hiding the risk incident from stakeholders not only lacks transparency -- it could also lead to greater problems down the line. Ignoring the risk since it wasn't previously identified is also a bad idea because it does nothing to address the new challenge at hand.

Question 3

You are managing a project and realize midway that a risk you had previously identified is unfolding. It threatens a critical path activity in your schedule. Who should you inform primarily?

Correct Answer: The project sponsor and key stakeholders

The project sponsor and key stakeholders should be informed primarily when a risk that had been previously identified unfolds and threatens a critical path activity in the project's schedule. This is because the project sponsor is responsible for the overall success of the project and its performance, while key stakeholders may have significant interest or influence over the project. Therefore, they need to be informed about any risk that may affect the project. Informing all team members might create unnecessary panic and would not necessarily help mitigate the risk, hence this option is incorrect. The company CEO likely has more strategic issues to deal with, and this level of operational detail may not be necessary to communicate to them directly, so the option with informing the CEO is incorrect. The option of handling it yourself without informing anyone is not the best practice in project risk management and hence is not the correct answer.

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