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Quantitative Risk Assessment

5 minutes 5 Questions

Quantitative risk assessment provides a numerical estimation on the risk probabilities and their impact on the project objectives. This approach involves complex statistical techniques and quantitative models, such as Monte Carlo simulations, decision tree analysis, and sensitivity analysis. This a…

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CAPM - Quantitative Risk Assessment Example Questions

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Question 1

You are managing a hardware project. There is a 0.3 probability that a critical part might fail within a year. The cost to replace the part is $75,000. What is the contingency reserve for this part?

Correct Answer: $22,500

The contingency reserve is calculated based on the probability of an event occurring and the impact, in cost, if the event occurs. In this case, the event is a critical part failing and the impact, or cost, is $75,000. The probability is 0.3. By multiplying the cost by the probability (75000 times 0.3), we get $22,500 which is the correct calculation of the contingency reserve. Other options like $25,000, $30,000 and $37,500 are incorrect because they do not align with the probability-cost calculation as described.

Question 2

A project has a 15% chance of a schedule overrun that will result in a $150,000 loss. What is the Exposure of this risk?

Correct Answer: $22,500

The Exposure of a risk is calculated by multiplying the potential loss by the probability of that event happening. In this case, the potential loss is $150,000, and the chance of a schedule overrun is 15%. So, we calculate 15% of $150,000, which gives us an Exposure of $22,500. The other answers are incorrect because they do not represent 15% of $150,000. Answer $15,000 represents 10% of $150,000. Answer $30,000 represents 20% of $150,000. And answer $45,000 represents 30% of $150,000. Therefore, the Exposure of this risk is $22,500.

Question 3

Your industrial construction project faces a 15% risk of snowstorms delaying the construction by a month with cost overruns estimated at $150,000. Calculate the risk exposure of this event?

Correct Answer: $22,500

The risk exposure is calculated by multiplying the probability of the risk (expressed as a fraction) by the cost associated with it. In this case, the risk of snowstorms is given as 15%. Expressed as a fraction, this is 0.15. The cost overrun estimated if a snowstorm does occur is $150,000. Multiplying these two values together (0.15 * 150,000), you get a risk exposure of $22,500. The other answers are incorrect because they do not correctly apply the formula for calculating risk exposure.

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