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Question 12 - PMI-RMP discussion

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As per the risk analysis process carried out for a project, two risks are registered. The probability risk A will occur is 40% and its monetary impact to the project is US$100,000. The probability risk B will occur is 60% and its monetary impact to the project is US$20,000.

What is the total contingency budget that should be created?

A.

US$68,000

Answers
A.

US$68,000

B.

US$52,000

Answers
B.

US$52,000

C.

US$120,000

Answers
C.

US$120,000

D.

US$80,000

Answers
D.

US$80,000

Suggested answer: B

Explanation:

In risk management, to calculate the contingency budget for risks, we use the Expected Monetary Value (EMV) formula: EMV=ProbabilityofRiskImpactofRisk\text{EMV} = \text{Probability of Risk} \times \text{Impact of Risk}EMV=ProbabilityofRiskImpactofRisk

For Risk A:

Probability: 40% or 0.40

Impact: US$100,000 \text{EMV of Risk A} = 0.40 \times 100,000 = US$40,000

For Risk B:

Probability: 60% or 0.60

Impact: US$20,000 \text{EMV of Risk B} = 0.60 \times 20,000 = US$12,000

Total contingency budget = EMV of Risk A + EMV of Risk B 40,000 + 12,000 = US$52,000

Thus, the total contingency budget required for both risks is US$52,000. This approach follows PMI's risk management guidelines, specifically under the 'Quantitative Risk Analysis' process. This process focuses on determining numerical probabilities and monetary impacts to compute the expected financial impact of identified risks.

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asked 14/11/2024
Piotr Jakubowski
32 questions
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