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Risk Management

5 minutes 5 Questions

Risk management is a key responsibility of a Product Owner. Some risks they might manage include project cost overruns, changing market trends, technical risks, etc. Effective risk management ensures that risks are identified, assessed, and properly mitigated. The PO's risk management responsibilit…

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PSM I - Risk Management Example Questions

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Question 1

You are a risk analyst at a large investment firm managing a portfolio of high-yield corporate bonds. During a routine risk assessment, you discover that a significant portion of the bonds are from companies in the energy sector, which has been experiencing increased volatility due to geopolitical tensions and fluctuating oil prices. Many of these companies have recently had their credit ratings downgraded. According to the CFA Level 1 curriculum, what is the most appropriate next step in managing this risk?

Correct Answer: Conduct a thorough analysis of the energy sector and the specific companies in the portfolio to assess the potential impact of the identified risks on the bonds' value and performance.

The most appropriate next step is to conduct a thorough analysis of the energy sector and the specific companies in the portfolio. This will help assess the potential impact of the identified risks on the bonds' value and performance. Immediately selling all the bonds from the energy sector companies, regardless of the potential losses incurred, is not a prudent approach. It may lead to realizing unnecessary losses and may not be in line with the portfolio's long-term investment strategy. Increasing the allocation to the energy sector bonds to take advantage of the potential higher yields is also not advisable. The market may have priced in the risks, but the increased volatility and credit rating downgrades indicate that the risks may outweigh the potential benefits of higher yields. Therefore, a comprehensive risk assessment and analysis of the energy sector and the specific companies is the most appropriate action to take before making any portfolio adjustments.

Question 2

According to the CFA Level 1 curriculum, which of the following is the most appropriate method for assessing the potential impact of identified risks on a project?

Correct Answer: Conducting a quantitative risk analysis to determine the probability and impact of each risk

Conducting a quantitative risk analysis to determine the probability and impact of each risk is the most appropriate method for assessing the potential impact of identified risks on a project according to the CFA Level 1 curriculum. A quantitative risk analysis provides a numerical assessment of each risk's likelihood and potential impact, allowing for a more objective and data-driven approach to prioritizing and managing risks. Performing a qualitative risk assessment by categorizing risks as high, medium, or low based on subjective judgment is less precise and may not provide a clear understanding of the relative importance of each risk. Implementing risk response strategies for all identified risks regardless of their likelihood or potential impact is not an efficient use of resources. It is more effective to prioritize risks based on their probability and impact and allocate resources accordingly.

Question 3

You are working on a data migration project from a legacy system to a new system. Two weeks into the project, a key performer discloses that they will be leaving the firm in a week due to personal reasons, which may lead to a delay in the project. What should be your approach to handle this risk?

Correct Answer: Update your risk register, engage the departing team member in a detailed knowledge transfer, and involve the team in finding a replacement or redistributing the workload.

The correct approach when facing the risk of a key team member leaving is to update your risk register to make this risk visible to all stakeholders, engage in a knowledge transfer session to ensure the departing member’s expertise is shared, and involve the team in finding a replacement or redistributing the workload. Increasing the frequency of Scrum ceremonies, renegotiating project scope, and organizing team-building activities might seem helpful, but they do not directly address the risk of losing critical knowledge or the immediate need for replacement or workload redistribution.

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