PRINCE2 Risk Practice Overview
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Questions and Answers

What is the primary purpose of the risk practice in PRINCE2?

  • To ensure project completion on time
  • To identify, assess, and control risks (correct)
  • To assign tasks to team members
  • To minimize project costs

Which role is responsible for taking action in response to a risk?

  • Risk assessor
  • Risk manager
  • Risk owner
  • Risk action owner (correct)

How is risk probability typically estimated?

  • By assigning a fixed percentage
  • By consulting external experts
  • By determining the total risk budget
  • By analyzing historical outcomes (correct)

What does risk exposure refer to?

<p>The degree to which an objective is at risk (D)</p> Signup and view all the answers

What is meant by risk tolerance in the context of project objectives?

<p>The acceptable range of performance outcomes (C)</p> Signup and view all the answers

What does risk velocity describe?

<p>How quickly a risk would impact objectives (B)</p> Signup and view all the answers

What does risk appetite indicate about a business?

<p>The willingness to accept certain risks for objectives (D)</p> Signup and view all the answers

Which of the following best describes risk impact?

<p>The expected consequences on objectives if a risk occurs (D)</p> Signup and view all the answers

What does sharing the risk involve?

<p>Multiple parties collaborating to bear the risk. (C)</p> Signup and view all the answers

What is the primary reason for a business to choose to accept a risk?

<p>To manage the full impact of the risk if it occurs. (C)</p> Signup and view all the answers

How does the option to prepare differ from the option to accept a risk?

<p>Preparation involves waiting for action and creating plans. (C)</p> Signup and view all the answers

In what situation might a business decide to accept a risk?

<p>When costs for managing the risk are prohibitively high. (A)</p> Signup and view all the answers

Why can sharing risks rarely be completely effective?

<p>The primary risk taker must protect their brand and reputation. (C)</p> Signup and view all the answers

What does framing an uncertainty as two risks involve?

<p>Considering the positive and negative impacts separately. (D)</p> Signup and view all the answers

What is the potential downside of fully accepting a risk without a plan?

<p>Inaction in the face of negative consequences. (B)</p> Signup and view all the answers

What is a characteristic of preparing contingent plans?

<p>They serve as fallback plans for uncertain situations. (B)</p> Signup and view all the answers

What is the primary goal of the 'avoid a threat' response option?

<p>To remove the cause of a threat or implement an opportunity (B)</p> Signup and view all the answers

What is a potential outcome of implementing a risk response?

<p>Creation of residual or secondary risks (C)</p> Signup and view all the answers

In the context of risk management, what does the term 'mitigate' mean?

<p>To take action to reduce probability and/or impact of a risk (A)</p> Signup and view all the answers

What must be done when costs are incurred to remove all residual risk?

<p>They must be justified in terms of the advantage gained (D)</p> Signup and view all the answers

What is the role of a risk owner in a project?

<p>To be clearly identified and manage specific risks (B)</p> Signup and view all the answers

What does transferring a risk usually involve?

<p>Paying premiums for insurance or sub-contracting (B)</p> Signup and view all the answers

Which of the following best describes enhancing an opportunity?

<p>Increasing the likelihood and/or impact of a beneficial outcome (A)</p> Signup and view all the answers

Why is it important to have a clear risk budget in a project?

<p>To manage costs associated with risk responses effectively (C)</p> Signup and view all the answers

What is the primary purpose of the risk management procedure?

<p>To identify, assess, and control uncertainties affecting project objectives. (D)</p> Signup and view all the answers

Which of the following describes 'optimism bias'?

<p>The inclination to ignore the potential for failure. (A)</p> Signup and view all the answers

What is meant by 'loss aversion' in decision-making?

<p>The emphasis on preventing losses rather than achieving gains. (B)</p> Signup and view all the answers

Which step is NOT part of the recommended risk management procedure?

<p>Negotiate (A)</p> Signup and view all the answers

What characterizes a risk that has a negative impact on objectives?

<p>It is known as a threat. (B)</p> Signup and view all the answers

What role does the 'communicate' step play in the risk management process?

<p>It is ongoing and necessary throughout the project's lifecycle. (C)</p> Signup and view all the answers

Which mental shortcut can lead to less effective decision-making?

<p>Decision bias. (D)</p> Signup and view all the answers

What does the term 'proximity' refer to in decision-making contexts?

<p>Prioritizing events based on their closeness in time. (A)</p> Signup and view all the answers

Which type of decision bias leads individuals to avoid loss rather than seeking potential gains?

<p>Loss aversion (D)</p> Signup and view all the answers

What are the basic steps in the recommended risk management procedure?

<p>Identify, assess, plan, and implement (B)</p> Signup and view all the answers

Which mindset makes individuals prioritize social harmony over alternative viewpoints?

<p>Groupthink (C)</p> Signup and view all the answers

In the context of risk management, what factors combine to measure risk?

<p>Probability of occurrence and magnitude of impact (C)</p> Signup and view all the answers

What is the role of a risk action owner in project risk management?

<p>To oversee the implementation of agreed actions for risks (C)</p> Signup and view all the answers

Which of the following best describes risk proximity?

<p>How close in time a risk might occur (A)</p> Signup and view all the answers

What is a characteristic of optimism bias in decision-making?

<p>Underestimating risks and overestimating control over outcomes (C)</p> Signup and view all the answers

What does risk exposure measure in project management?

<p>How exposed an objective is to both positive and negative outcomes (D)</p> Signup and view all the answers

Which statement best reflects the function of the 'communicate' step in the risk management technique?

<p>It runs throughout the project to share outputs of other steps (B)</p> Signup and view all the answers

Which type of mindset is characterized by viewing situations that are nearer in time as riskier than those further away?

<p>Proximity (B)</p> Signup and view all the answers

How is risk probability typically evaluated in project risk management?

<p>Through the likelihood or frequency of the risk occurring (B)</p> Signup and view all the answers

What is the overarching goal of implementing a fallback plan in risk management?

<p>To address any potential failures in avoiding or exploiting risks (C)</p> Signup and view all the answers

What is the purpose of a risk budget in project management?

<p>To allocate resources for addressing identified risks (A)</p> Signup and view all the answers

Which aspect of risk does risk velocity refer to?

<p>The speed at which a risk can impact project objectives (C)</p> Signup and view all the answers

What does risk appetite indicate about an organization?

<p>The acceptable level of risk the organization is willing to take (A)</p> Signup and view all the answers

Which of the following best defines risk tolerance in a project?

<p>The specific limits of acceptable variation for each risk outcome (D)</p> Signup and view all the answers

What is the main characteristic of the 'share the risk' response option?

<p>It requires multiple parties within a supply chain to collaborate on risk. (C)</p> Signup and view all the answers

In which scenario might a business choose to accept a risk?

<p>If the risk exposure is below their risk tolerance threshold. (A)</p> Signup and view all the answers

What does the preparation of contingent plans typically indicate?

<p>The risks are currently accepted but plans are in place for potential changes. (D)</p> Signup and view all the answers

What is a potential drawback of not taking action on a risk that is accepted?

<p>It may lead to significant unpreparedness if the risk materializes. (A)</p> Signup and view all the answers

Why might risks not be completely shared among parties involved?

<p>Parties usually have different risk tolerances and impacts. (B)</p> Signup and view all the answers

How does framing uncertainty as two distinct risks benefit risk management?

<p>It allows for specific responses tailored to each potential outcome. (C)</p> Signup and view all the answers

What is the primary characteristic of the 'exploit an opportunity' response option?

<p>It seeks to maximize the benefits of an opportunity. (C)</p> Signup and view all the answers

What is often a consequence of choosing not to hedge against currency fluctuations?

<p>Profitability may be jeopardized due to unprotected margins. (C)</p> Signup and view all the answers

What defines a risk that leads to a positive outcome and another that leads to a negative outcome?

<p>Each must be managed separately as distinct risks. (A)</p> Signup and view all the answers

In the context of risk management, what does 'mitigating a threat' entail?

<p>Taking action to reduce the probability or impact of the risk. (A)</p> Signup and view all the answers

What does the option to 'transfer the risk' generally involve?

<p>Engaging third parties to take on some risk in exchange for compensation. (D)</p> Signup and view all the answers

Why must response costs be justified in risk management?

<p>To ensure the investment in risk management reduces the residual risk significantly. (B)</p> Signup and view all the answers

What is a potential consequence of implementing risk responses?

<p>It may lead to new residual or secondary risks. (B)</p> Signup and view all the answers

Which response option involves immediate and proactive actions to lessen a risk?

<p>Reduce a threat. (A)</p> Signup and view all the answers

Which statement best describes the 'avoid a threat' response option?

<p>It involves making the uncertain situation certain by removing the risk. (A)</p> Signup and view all the answers

What is an essential part of risk management in terms of project budgeting?

<p>Allocating a specific risk budget that is protected within the overall project budget. (A)</p> Signup and view all the answers

Flashcards

Risk practice in PRINCE2

One of the seven PRINCE2 practices focusing on identifying, assessing, and controlling potential risks to project objectives.

Risk owner

The person responsible for responding to a specific risk.

Risk action owner

Person with responsibility for actions to address a risk (also known as risk actionee).

Risk probability

Estimated chance of a risk occurring, often based on likelihood or frequency.

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Risk impact

Estimated effect on objectives if a risk occurs.

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Risk exposure

Degree to which an objective is at risk, potentially positive or negative.

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Risk Appetite

Amount and type of risk a business is willing to pursue its objectives.

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Risk Budget

Funds allocated to address project threats and opportunities, like contingency plans.

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Risk Response Options

Strategies to address project risks, including avoiding threats, exploiting opportunities, reducing threats, enhancing opportunities, and transferring risks.

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Avoid a Threat

Removing or eliminating the root cause of a potential risk, making the uncertain situation certain.

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Exploit an Opportunity

Capitalizing on a potential benefit by taking actions to enhance its probability or impact.

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Reduce a Threat

Taking actions to decrease the likelihood or impact of a negative risk.

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Enhance an Opportunity

Increasing the likelihood or impact of a potential benefit.

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Transfer the Risk

Shifting responsibility and potential impact of a risk to a third party (e.g., insurance).

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Residual Risk

Risk that remains after implementing a response plan.

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Share the risk

Involves multiple parties (usually within a supply chain) sharing the risk on a pain or gain basis. This option is different from transfer as it focuses on collaboration and shared responsibility. Risks can rarely be entirely shared.

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Accept the risk

Means the business 'takes the chance' that the risk will occur, actively managing its full impact. No change to residual risk and no costs incurred in advance.

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Prepare contingent plans

Involves developing plans beforehand, but waiting to take action until needed. Often associated with accepting a risk, but it can also apply to other responses.

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Risk tolerance threshold

The maximum level of risk that a business is willing to accept for a specific activity. This is based on the organization's overall risk appetite.

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Currency fluctuations as a risk

The potential impact of changing exchange rates on a business's profitability. This poses two risks: one for potential loss and another for potential gain.

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Delegating risk management

The process of assigning responsibility for managing risks to a third party. This can be a viable option when the business focuses on its core competencies.

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Fallback Plans

Plans that are used when an initial strategy, like avoiding a threat or exploiting an opportunity, fails to provide the expected outcome.

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Decision Bias

The tendency to use shortcuts or faulty thinking when making decisions. It can often lead to less effective choices, especially when faced with complex situations.

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Optimism Bias

A type of decision bias where people underestimate the potential for negative outcomes and are more likely to believe things will turn out well for them.

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Loss Aversion

A type of decision bias where people prioritize avoiding losses over potentially gaining something of equal value.

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Groupthink

A type of decision bias where people within a group prioritize social harmony over expressing different opinions or making the best decision.

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Proximity Bias

A type of decision bias where people perceive risks as more important and urgent when they are closer in time, even if they are less significant in the long run.

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Risk Management Steps

The recommended process for managing risks in PRINCE2 involves four steps: identification, assessment, planning, and implementation.

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Risk Communication

A continuous process in PRINCE2 risk management where information about risks is shared throughout the project.

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What is the role of the risk owner?

The person assigned to take responsibility for responding to a specific risk.

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What is the difference between a risk owner and a risk action owner?

The risk owner is responsible for the overall risk response, while the risk action owner (also known as the risk actionee) is responsible for carrying out specific actions to address the risk.

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Risk Proximity

How close in time a risk might occur.

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Risk Velocity

How quickly a risk would have an impact on objectives if it happens.

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Risk Tolerance

The maximum level of risk a business is willing to accept for a specific activity. This is based on the organization's overall risk appetite.

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Risk Response Types

Strategies used to deal with project risks. They include options like avoiding threats, exploiting opportunities, reducing threats, enhancing opportunities, transferring risks, sharing risks, and accepting risks.

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Accepting a Risk

Means the business chooses to take the chance that the risk will occur. They manage the full impact if it happens. There is no change to residual risk, and no costs are incurred.

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Preparing Contingency Plans

Planning for situations where the initial risk response plan might fail. This applies to any response option (accepting, avoiding, reducing, etc.).

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Sharing a Risk

Involves multiple parties collaborating to manage the risk, typically within a supply chain. It means sharing the pain or gain of the risk.

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Transferring a Risk

Shifting the responsibility and potential impact of a risk to a third party, such as through insurance.

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Currency Fluctuations Risk

The potential impact of changing exchange rates on a business's profitability. This creates two risks: one for potential loss and another for potential gain.

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What are fallback plans?

Fallback plans are alternative strategies used when an initial plan to avoid a threat or exploit an opportunity fails to achieve its intended outcome.

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What is Decision Bias?

Decision bias is the tendency for people to make decisions using shortcuts or faulty thinking processes, which can lead to less effective choices.

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PRINCE2 Risk Management Steps

The PRINCE2 risk management process involves four steps: identifying risks, assessing their probability and impact, planning responses, and implementing those plans.

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What is Risk Communication?

Risk communication is a continuous process throughout a project where information about risks is shared and updated with stakeholders.

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Study Notes

PRINCE2 Risk Practice

  • Risk is inherent in projects due to planned changes introducing uncertainty. Projects need to identify, assess, and control risk to ensure objectives aren't affected.
  • Risk is one of the seven PRINCE2 practices.
  • Risk owner is responsible for responding to identified risk. Risk action owner (actionee) is responsible for agreed risk responses.
  • Risk probability is the likelihood a risk will occur, often estimated by its frequency or likelihood.
  • Risk impact is the effect on objectives should a risk occur.
  • Risk proximity is how near in time a risk might occur.
  • Risk velocity is how quickly a risk will impact objectives.
  • Risk exposure is the degree of risk on an objective, potentially positive or negative.
  • Risk appetite is the level and type of risk a business is willing to accept to achieve its objectives.
  • Risk budget is the funds to manage project risks and threats/ opportunities.
  • Risk tolerance is a measurable threshold of acceptable outcomes for each objective at risk, measured the same way as the objective's performance.

Risk Planning

  • Risk planning involves identifying and prioritizing risks, considering their causes, events and effects.
  • Risk categories can be used to organize risks.
  • The RISK MATRIX displays risks according to probability and impact.
  • Risk tolerance lines are crucial.
  • Specific risks highlighted in the marked area are those that the business will not tolerate outside of special circumstances.
  • Different risk response options are available:
    • Avoid a threat: remove the cause of the threat or apply a factor to prevent it. Usually involves a cost to reduce residual risk.
    • Reduce a threat: takes action to alter probability or impact of risk. Also called mitigate.
    • Enhance an opportunity: involve making something more likely to happen or increase the outcome's impact
    • Transfer the risk: transfer the risk to another party like an insurer.
    • Share the risk: multiple parties in a supply chain share the risk.
    • Accept the risk: accept the risk and future impact, without any upfront cost for management or preparation.
    • Prepare contingency plans: plan for potential changes to avoid or exploit risk.

Roles and Responsibilities in Risk Management

  • Business layer: sets risk management policy, risk appetite, and project level risk tolerance.
  • Project executive: sets risk tolerance and risk budget, ensuring business case risks are identified and managed.
  • Senior user: ensures user risks are identified, assessed, and controlled, focusing on safeguarding benefits and operational requirements.
  • Senior supplier: ensures supplier-related risks are managed, safeguarding solution integrity.
  • Project manager: Consults with stakeholders and ensures risks are managed.
  • Team manager: implements risk management procedures.
  • Project Assurance: advises the project manager and confirms risk management approach complies with business policies.
  • Project support: provides administrative support for risk controls.

Risk Management Technique

  • Risk management involves following steps: identify, assess, plan and implement, communicate.

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Module 8 Risk PDF - PRINCE2 Past Paper

Description

This quiz covers the fundamentals of risk management within the PRINCE2 methodology. Learn about key concepts such as risk owners, risk probability, and risk exposure while understanding the different aspects of managing risks in projects. Enhance your knowledge of how to effectively identify, assess, and control risks to meet project objectives.

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