Manage Portfolio Risks

Correct Answer: Quantitative risk analysis using probability and impact matrix

The correct answer is 'Quantitative risk analysis using probability and impact matrix' because: This technique specifically addresses both key components mentioned in the question: - Probability evaluation of events - Assessment of potential impact A probability and impact matrix is a fundamental tool in portfolio risk management that allows managers to systematically evaluate and prioritize risks based on these two dimensions. Why other options are incorrect: Qualitative risk assessment relies more on subjective evaluation and doesn't typically utilize specific probability measurements. Portfolio value stream mapping focuses on process flow and efficiency rather than risk probability and impact assessment. Monte Carlo simulation is a complex statistical modeling technique that goes beyond simple probability and impact assessment, using multiple variables and iterations to predict outcomes.

Correct Answer: To establish acceptable levels of risk exposure for the organization

The key purpose of a risk threshold in portfolio risk management is to establish acceptable levels of risk exposure for the organization. This is fundamental because: 1. It provides clear boundaries for risk-taking activities 2. It helps align risk management with organizational risk appetite 3. It enables consistent decision-making across the portfolio 4. It creates a framework for risk monitoring and control The other options are incorrect because: Budget allocation for risk mitigation is a consequence of risk thresholds, not its primary purpose. The number of risks that can be managed is an operational consideration, not the purpose of risk thresholds. Measuring cumulative impact is a risk assessment activity, separate from establishing thresholds. While important, it's not the primary purpose of risk thresholds. Risk thresholds serve as guardrails that guide portfolio decisions and ensure risk exposure remains within acceptable limits for the organization.

Correct Answer: Risk aggregation analysis

Risk aggregation analysis is the correct answer because it specifically addresses the combination of individual risk components into a comprehensive portfolio-level assessment. This process involves: 1. Gathering individual risk measurements from different portfolio components 2. Combining these risks using statistical methods 3. Creating a unified view of total portfolio risk exposure 4. Accounting for correlations and interactions between different risks The other options are incorrect because: - Risk capacity measurement focuses on determining how much risk can be taken, not how risks are combined - Portfolio risk decomposition does the opposite by breaking down risks rather than combining them - Risk categorization matrix primarily focuses on classifying risks rather than combining them for overall assessment