Risk Practice

The correct approach is to apply electromagnetic mapping results to assess site-specific interference levels and weight the probability based on the proportion of deployment locations in each interference category, using this contextual analysis as the primary assessment basis.

This is correct because PRINCE2 7's Risk theme emphasizes that risk assessments must be context-specific and relevant to the actual project environment. The electromagnetic mapping study provides the most project-specific data available, showing that:
- 12 sites (25.5%) have severe interference
- 21 sites (44.7%) have moderate interference
- 14 sites (29.8%) have minimal interference

This site-specific environmental data is directly relevant to this project's unique circumstances and allows for a weighted probability calculation that reflects the actual deployment conditions. The Risk Management Approach explicitly requires incorporating 'the most relevant evidence considering project-specific environmental conditions,' making this the most appropriate method.

Why the other answers are incorrect:

Calculating an arithmetic mean of all probability indicators would be inappropriate because it treats all data sources as equally relevant, regardless of their applicability to this specific project's conditions. Different data sources have varying levels of relevance - laboratory conditions, manufacturer specifications, and other cities' experiences may not accurately reflect this project's specific electromagnetic environment across 47 deployment locations.

Using only the manufacturer's 18% failure rate would ignore critical project-specific environmental factors. Manufacturer specifications typically represent general performance under standard conditions, not the specific electromagnetic interference patterns documented in this project's urban environment. This single-source approach contradicts the Risk Management Approach requirement to consider project-specific conditions.

Relying solely on the neighboring city's 31% operational data, while seemingly practical, assumes that city's electromagnetic environment matches this project's conditions. Without knowing the interference profile of that deployment, this data cannot be assumed to be directly transferable. The project has its own detailed electromagnetic mapping showing a specific distribution of interference levels that should inform the assessment.

In PRINCE2 7 risk management terminology, it is essential to distinguish between risk cause, risk event, and risk effect:

• A risk cause is the source or underlying condition that creates uncertainty
• A risk event is the uncertain occurrence itself - the thing that may or may not happen
• A risk effect is the consequence or impact if the risk event occurs

Analyzing the three entries:

Entry M describes the flood zone designation and historical water table fluctuations. This represents the risk cause - the underlying environmental condition that creates the possibility of problems, but it is not itself an uncertain event. The flood zone exists as a known fact.

Entry N describes heavy rainfall causing groundwater levels to rise above foundation depth and requiring emergency dewatering. This is the risk event - the specific uncertain occurrence that may or may not happen during construction. It represents the actual triggering incident that bridges the gap between the existing condition (flood zone) and the consequences (delays and costs).

Entry O describes the foundation work suspension, delays, and associated costs. This represents the risk effect - the measurable impact and consequences that result from the risk event occurring.

The Risk Manager needs to monitor for the risk event through early warning systems because this is the uncertain occurrence that, if detected early, can allow for preventive or mitigating actions to be taken before the full effects materialize.

The answer stating Entry M is incorrect because it confuses the risk cause (environmental condition) with the risk event (uncertain occurrence).

The answer stating Entry O is incorrect because it identifies the risk effect (consequences) rather than the risk event that triggers those consequences.

The answer describing Entry N as the risk cause is incorrect because it reverses the relationship - Entry N is what happens as a result of the underlying cause (flood zone), not the cause itself.

The correct answer is to transfer the currency exchange threat by executing the forward contract.

In PRINCE2 7, risk response types include avoid, reduce, transfer, accept, exploit, enhance, share, and reject. The key to selecting the appropriate response is matching the risk characteristics with organizational priorities and the nature of the threat.

This situation presents a financial threat with:
- High probability (55-65%)
- Significant potential impact (£320,000-£410,000)
- A specialized nature requiring financial expertise
- Available insurance-like mechanism (forward contract)

Transfer is the most appropriate response because:

1. The forward contract transfers the financial risk to a specialized entity (financial institution) that is better equipped to manage currency exposure

2. The cost of transfer (£48,000) is substantially lower than the potential impact (£320,000-£410,000) and provides certainty

3. The Project Board values budget predictability, which transfer achieves by converting uncertain exposure into a known fixed cost

4. Transfer is appropriate when risks fall outside the project's core competencies - currency speculation is not a project management capability

5. The management reserve (6% of £4.8M = £288,000) remains available for other project risks

The other options are less appropriate:

Restructuring payment schedules combined with GBP invoicing represents reduction, but introduces new complexities. The 3.5% premium on all services could exceed the forward contract cost, and payment schedule changes may conflict with project delivery needs. This approach doesn't eliminate the risk, merely reduces exposure while adding operational complexity.

Establishing a dedicated contingency reserve represents acceptance rather than proactive management. While £380,000 covers the midpoint of potential exposure, it consumes significant budget capacity without addressing the root cause. Acceptance is appropriate for low-impact risks or when response costs exceed benefits - neither applies here given the available cost-effective transfer mechanism.

Attempting to avoid the risk through payment schedule restructuring and using existing management reserve is inappropriate because:
- True avoidance would eliminate the threat entirely (e.g., removing the need for USD-denominated services)
- Timing payments to favorable exchange periods is speculation, not avoidance
- This depletes management reserve intended for general project uncertainties
- The approach doesn't eliminate currency exposure, merely attempts to minimize it through market timing

Transfer through the forward contract provides certainty, preserves management reserve for other risks, and represents sound risk management by utilizing specialized financial instruments for financial risks.