PMI Risk Management Professional Practice Exam

In managing a risk with a 60% chance of costing $60,000 and a 40% chance of costing -$80,000, what strategy is recommended to reduce uncertainty?

1. Get the supplier to mitigate the risk by providing warranties on its supplies.

2. Share all the opportunity with the supplier in exchange for transferring all the threat.

3. Avoid the situation, as it has a net negative EMV.

4. Accept the situation, since the negative EMV is small.

The correct answer is: Share all the opportunity with the supplier in exchange for transferring all the threat.

The recommended strategy of sharing all the opportunity with the supplier in exchange for transferring all the threat is correct because it effectively spreads the risk between the parties involved. This approach not only mitigates the financial downside associated with the risk but also aligns both the supplier's and project team's interests toward maximizing the opportunity. In this scenario, the risk has a dual nature: a high probability of incurring a cost and a potential favorable outcome of a negative cost. By collaborating with the supplier, an agreement can be forged that allows both parties to benefit from the upside while ensuring the project team does not bear the full brunt of the potential loss. This method reduces uncertainty by creating a more predictable risk landscape. The supplier may have the resources or expertise to manage the risk more effectively, allowing them to implement strategies that the project team may not have considered. Looking at the other strategies, avoiding the situation entirely may cripple potential opportunities that could arise from the favorable condition. Accepting the situation simply because the negative expected monetary value (EMV) is small does not proactively address the uncertainty and risk inherent in the project. The first choice, obtaining warranties, is a good risk management measure but does not fully leverage the opportunity or transfer the risk as effectively as the proposed option does