PMI Risk Management Professional Practice Exam

If the threat of explosion on a project site is reduced to 1% at a cost of $100,000, what should the project manager do?

1. Implement the response, since it could save lives even though it is not cost-effective.

2. Implement the response, as it will improve net EMV by $89,000.

3. Reject the response, as it would reduce net EMV by $99,000.

4. Accept the risk, since the response is equal to the unmitigated threat's EMV.

The correct answer is: Implement the response, as it will improve net EMV by $89,000.

The correct answer is based on understanding the concept of Expected Monetary Value (EMV) and how the cost of risk mitigation impacts a project's overall financial outlook. By evaluating the situation: 1. The threat of explosion poses a certain level of risk that can be quantified into a monetary value, creating an EMV for that risk with the potential impact. If the risk of explosion is present, it is essential to assess how much that risk might cost the project. 2. Reducing the risk from 100% to 1% means you are effectively mitigating 99% of that risk. To determine if this action is financially viable, one would calculate the EMV of the unmitigated threat and compare it to the cost of mitigation. 3. The choice to implement the response comes after performing the calculations. If mitigating the risk increases net EMV by $89,000, this indicates that the benefits outweigh the costs. The project manager should pursue mitigation because it contributes positively to the project's financial health. This coherent examination reflects an understanding of risk management principles where decisions must balance safety concerns with financial implications. Reducing the risk not only suggests a more secure project environment but also enhances the project's potential profitability.