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Risk Response Planning

5 minutes 5 Questions

Risk Response Planning is the process of developing options, selecting strategies, and agreeing on actions to address overall project risk exposure, as well as to treat individual risks. The goal is to enhance opportunities and reduce threats to the project's objectives. For each identified risk, appropriate response strategies are determined. Common strategies for negative risks (threats) include: - **Avoid**: Eliminating the threat by changing the project plan. - **Transfer**: Shifting the impact of the threat to a third party, such as through insurance or outsourcing. - **Mitigate**: Reducing the probability or impact of the threat. - **Accept**: Acknowledging the risk and not taking any action unless it occurs. For positive risks (opportunities), strategies include: - **Exploit**: Ensuring the opportunity definitely happens. - **Enhance**: Increasing the probability or impact of the opportunity. - **Share**: Allocating ownership to a third party who is best able to capture the opportunity. - **Accept**: Being willing to take advantage of the opportunity if it arises but not actively pursuing it. Effective Risk Response Planning involves assigning risk owners who are responsible for carrying out the agreed-upon responses. It also requires integrating these responses into the project management plan and budget. By proactively planning risk responses, projects can minimize surprises, control costs and schedules, and improve the likelihood of achieving objectives. This process ensures that both threats and opportunities are systematically managed throughout the project lifecycle, contributing to overall project success.

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PMI-RMP - Risk Management Planning Example Questions

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Question 1

During risk response planning for a pharmaceutical project, your team is concerned about potential supply chain delays affecting critical ingredients. The project manager allocates additional funds and resources as a reserve for potential emergency measures. What type of risk response strategy best describes this approach?

Correct Answer: Contingency Response Strategy

The best approach described in this scenario is a Contingency Response Strategy. Here's why: A Contingency Response Strategy involves: - Setting aside specific resources (time, money, or other resources) - Planning for identified risks - Having reserves ready for specific risk events - Being proactive rather than reactive This fits perfectly with the scenario where the project manager is allocating additional funds and resources as a reserve for potential emergency measures related to supply chain delays. Why other options are incorrect: An escalation process involving multiple stakeholders is too complex and procedural for what is essentially a resource allocation strategy. A prevention strategy with monitoring systems doesn't address the core action of setting aside resources for emergencies. Reactive mitigation through alternative suppliers is a reactive approach, whereas the scenario describes a proactive measure of setting aside resources in advance.

Question 2

During a risk assessment for a spacecraft component testing project, your team calculated that purchasing new testing equipment would cost $200,000, training staff on current equipment would cost $150,000, and outsourcing the testing would cost $175,000. If equipment failure could result in a $500,000 loss with 60% probability, training could reduce failure probability to 30%, and outsourcing has a 20% failure rate, which option presents the lowest Expected Monetary Value (EMV)?

Correct Answer: Outsourcing the testing ($275,000 EMV)

Let's calculate the Expected Monetary Value (EMV) for each option: 1. Outsourcing: Cost = $175,000 Probability of failure = 20% Potential loss = $500,000 EMV = $175,000 + (0.20 × $500,000) = $275,000 2. Training staff: Cost = $150,000 Probability of failure = 30% Potential loss = $500,000 EMV = $150,000 + (0.30 × $500,000) = $300,000 3. New equipment: Cost = $200,000 Probability of failure = 60% Potential loss = $500,000 EMV = $200,000 + (0.60 × $500,000) = $500,000 Outsourcing presents the lowest EMV at $275,000, making it the most cost-effective option when considering both initial costs and risk-adjusted potential losses. The EMV calculation takes into account both the upfront costs and the probability-weighted potential losses, providing a clear comparison between options.

Question 3

During risk response planning for a social media platform launch, your team identifies a risk of user data breaches due to potential vulnerabilities. If implementing advanced encryption costs $100,000 with an 80% success rate, purchasing cyber insurance costs $75,000 with full coverage, and enhancing security protocols costs $60,000 with a 70% success rate, which option provides the lowest expected monetary value (EMV) if a breach could cost $400,000?

Correct Answer: Purchase cyber insurance for $75,000

Let's calculate the EMV for each option: 1. Cyber Insurance ($75,000): Total cost = $75,000 (Full coverage means no additional risk cost) EMV = $75,000 2. Advanced Encryption ($100,000): 20% chance of failure × $400,000 = $80,000 risk cost EMV = $100,000 + $80,000 = $180,000 3. Enhanced Security ($60,000): 30% chance of failure × $400,000 = $120,000 risk cost EMV = $60,000 + $120,000 = $180,000 4. Combined Approach ($175,000): Highest upfront cost with redundant coverage EMV = $175,000 Purchasing cyber insurance has the lowest EMV at $75,000. This option provides full coverage against the $400,000 potential loss at a fixed cost, making it the most cost-effective solution from a pure EMV perspective. The other options result in higher EMVs due to either higher initial costs or remaining risk exposure that must be factored into the calculation.

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