FPM WEEK 9 - Scenario
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A project involves implementing a new software system, and one identified risk is a potential delay due to stakeholder unavailability for key workshops. The probability is medium, and the impact is high. What is the best risk response?

  • Transfer the risk by outsourcing the facilitation of workshops to a third party.
  • Escalate the risk to senior management to manage stakeholder availability.
  • Accept the risk and proceed with the current schedule.
  • Mitigate the risk by scheduling workshops well in advance and providing alternate participation methods. (correct)
  • A project manager discovers that a key resource might be reassigned to another project, potentially delaying the timeline. What is the most effective response?

  • Escalate the risk to the sponsor and request a decision on resource prioritization.
  • Avoid the risk by assigning a backup resource immediately.
  • Mitigate the risk by cross-training other team members to fill the role. (correct)
  • Accept the risk and adjust the schedule if the resource is reassigned.
  • The risk register includes a threat of regulatory changes that could impact project scope. The probability is low, but the impact is very high. What strategy should the project manager adopt?

  • Monitor the risk and implement contingent responses if the changes occur. (correct)
  • Escalate the risk to legal counsel to track potential changes.
  • Avoid the risk by modifying the project scope to exclude regulatory exposure.
  • Transfer the risk by purchasing insurance against compliance penalties.
  • The team is conducting a risk analysis using a Probability and Impact Matrix. A risk with a probability of 70% and an impact of $50,000 is identified. If the risk threshold is set at 4, what should the project manager do?

    <p>Prioritize the risk for immediate response planning.</p> Signup and view all the answers

    A previously low-risk item in the risk register now has a much higher probability due to recent project changes. How should the project manager handle this?

    <p>Update the risk score and evaluate whether the response strategy needs modification.</p> Signup and view all the answers

    The project involves procuring specialized equipment. The seller proposes a Cost Plus Percentage Fee (CPPF) contract. How should the project manager handle this?

    <p>Negotiate for a Fixed Price or Cost Plus Incentive Fee (CPIF) contract to minimize buyer risk.</p> Signup and view all the answers

    A vendor fails to deliver on time, citing unforeseen supply chain issues. The contract is Fixed Price. What is the project manager's best course of action?

    <p>Enforce contract terms and apply penalties for late delivery.</p> Signup and view all the answers

    The team is evaluating proposals from multiple sellers using a Weighted Scoring Model. One seller scores high on technical criteria but offers the highest price. What should the project manager prioritize?

    <p>Use Best and Final Offer (BAFO) negotiations to lower the high-scoring seller's price.</p> Signup and view all the answers

    A project requires a Time and Materials (T&M) contract for an undefined scope. What should the project manager do to manage cost risks?

    <p>Set a price ceiling in the contract to limit financial exposure.</p> Signup and view all the answers

    The project sponsor prefers to avoid risk in procurement and asks for a contract type that minimizes buyer uncertainty. Which contract type should the project manager recommend?

    <p>Firm Fixed Price (FFP) contract.</p> Signup and view all the answers

    During a procurement process, the seller insists on using their own terms and conditions, which include a clause limiting their liability for delays. This poses a significant risk to the project. What is the best course of action?

    <p>Negotiate to remove or revise the liability clause to better protect the buyer.</p> Signup and view all the answers

    A project manager identifies that a critical deliverable may not meet its deadline due to a subcontractor's performance. The contract is a Cost Plus Fixed Fee (CPFF) agreement. What should the project manager prioritize?

    <p>Use performance incentives within the contract to motivate the subcontractor.</p> Signup and view all the answers

    A project risk assessment reveals a 20% probability of a $100,000 loss due to a regulatory change. What is the expected monetary value (EMV) of this risk?

    <p>$20,000</p> Signup and view all the answers

    The team is considering insurance to transfer a high-impact risk related to construction delays. The premium is $25,000, while the risk impact is $250,000 with a 10% probability. Should the project manager recommend purchasing insurance?

    <p>Yes, as the premium cost is lower than the potential EMV of the risk.</p> Signup and view all the answers

    The project team identifies that an essential supplier has limited capacity to fulfill all requirements. What procurement strategy should the project manager use to address this?

    <p>Develop a multiple-supplier agreement to diversify risk.</p> Signup and view all the answers

    During project execution, the CPI (Cost Performance Index) is 0.85, and the SPI (Schedule Performance Index) is 1.10. A new high-risk procurement is required. What should the project manager prioritize?

    <p>Perform a detailed cost-risk analysis before proceeding with procurement.</p> Signup and view all the answers

    The project requires procuring a component critical to the schedule. However, there is a risk of price increases due to market volatility. What should the project manager do?

    <p>Lock in the price with a long-term fixed-price contract.</p> Signup and view all the answers

    A stakeholder raises concerns about a high-risk procurement strategy involving a sole-source vendor. How should the project manager mitigate the risk?

    <p>All of the above.</p> Signup and view all the answers

    The team is conducting a quantitative risk analysis and identifies a risk with multiple potential outcomes: a 30% chance of $50,000 loss, a 50% chance of no impact, and a 20% chance of $80,000 gain. What is the EMV of the risk?

    <p>$11,000</p> Signup and view all the answers

    The project manager identifies a new opportunity that could significantly enhance project value but would require reallocating contingency reserves. What is the best way to proceed?

    <p>Conduct a cost-benefit analysis to evaluate the opportunity before reallocating reserves.</p> Signup and view all the answers

    A supplier offers a lower price in exchange for partial upfront payment, but this increases the project's financial risk. What should the project manager do?

    <p>Negotiate for a smaller upfront payment to balance cost savings and risk.</p> Signup and view all the answers

    A project sponsor insists on accelerating a procurement process to meet an early delivery date. What should the project manager prioritize to mitigate risks?

    <p>Perform a thorough vendor prequalification to ensure reliability under time constraints.</p> Signup and view all the answers

    The project requires specialized training for vendor personnel. This was not included in the original contract. How should the project manager handle this?

    <p>Issue a change order to formally add the training to the contract.</p> Signup and view all the answers

    A project manager is monitoring a vendor contract with performance-based payments. The vendor delivers earlier than expected, but the quality is subpar. What is the best response?

    <p>Enforce quality standards and withhold payments until the deliverable meets requirements.</p> Signup and view all the answers

    A project team identifies a risk with a high probability but low impact. The sponsor asks why no contingency reserve was allocated. What should the project manager explain?

    <p>The risk falls below the threshold for contingency reserve allocation.</p> Signup and view all the answers

    A contractor on a Fixed Price Incentive Fee (FPIF) contract has met their milestone early but requests an additional incentive for exceeding the schedule. What is the best way for the project manager to handle this?

    <p>Review the contract terms to determine if early delivery qualifies for additional incentives.</p> Signup and view all the answers

    A project team identifies a risk related to potential delays in material delivery. The supplier offers an expedited delivery option at a premium cost. What should the project manager do?

    <p>Conduct a cost-benefit analysis to determine if the premium cost justifies mitigating the delay risk.</p> Signup and view all the answers

    During a procurement audit, it is discovered that one vendor has been consistently underperforming. The vendor is under a Time and Materials (T&M) contract. What is the project manager's best course of action?

    <p>Implement stricter monitoring and review processes for the vendor's work.</p> Signup and view all the answers

    A quantitative risk analysis reveals that mitigating a high-risk event will cost $20,000, but the EMV of the risk is only $15,000. How should the project manager proceed?

    <p>Accept the risk because the mitigation cost exceeds the EMV.</p> Signup and view all the answers

    A project manager must choose between two suppliers. Supplier A has a proven track record but a higher cost, while Supplier B offers lower pricing but has limited experience. What is the best decision-making approach?

    <p>Use a weighted scoring model to evaluate both suppliers based on cost and reliability criteria.</p> Signup and view all the answers

    A project's risk register identifies a threat with high probability but low impact. The project sponsor questions why no mitigation plan is in place. What should the project manager do?

    <p>Explain that monitoring the risk is sufficient given its low impact.</p> Signup and view all the answers

    The procurement team is considering a multi-year contract for recurring services. Market trends indicate potential cost reductions over time. What is the best procurement strategy?

    <p>Include price adjustment clauses in the contract to leverage future cost reductions.</p> Signup and view all the answers

    A vendor under a Fixed Price contract submits a change request for additional payment due to unexpected labor costs. How should the project manager respond?

    <p>Deny the change request, as the vendor is responsible for managing costs under the Fixed Price contract.</p> Signup and view all the answers

    A critical task requires a procurement item that is not available from any current vendors. The procurement team suggests developing a custom solution, which will significantly increase costs. What should the project manager prioritize?

    <p>Perform a cost-benefit analysis to evaluate the feasibility of a custom solution.</p> Signup and view all the answers

    The project sponsor insists on a rapid procurement process for critical materials, but the team is concerned about quality risks. What is the best way to address this?

    <p>Implement a prequalification process to ensure vendors meet quality standards before procurement.</p> Signup and view all the answers

    The team identifies a risk that could delay project delivery. The mitigation plan involves reallocating resources from another critical task. What should the project manager do?

    <p>Assess the overall project impact and consult stakeholders before reallocating resources.</p> Signup and view all the answers

    A project manager receives a request from a vendor to renegotiate payment terms due to cash flow issues. The vendor is critical to project success. What should the project manager do?

    <p>Review the request and negotiate terms that align with project goals and constraints.</p> Signup and view all the answers

    The procurement team is evaluating a proposal from a vendor with limited industry experience. The vendor offers significant cost savings. What is the best decision-making approach?

    <p>Use a weighted scoring model to evaluate the proposal against technical and cost criteria.</p> Signup and view all the answers

    A quantitative risk analysis shows a risk with an EMV of $50,000. The cost of mitigation is $40,000, but it reduces the risk's impact by 80%. What is the best course of action?

    <p>Proceed with the mitigation plan, as it provides a cost-effective risk reduction.</p> Signup and view all the answers

    A project team identifies a procurement risk involving vendor performance variability. The vendor proposes a Cost Plus Incentive Fee (CPIF) contract. How should the project manager proceed?

    <p>Negotiate performance incentives tied to specific milestones to manage variability.</p> Signup and view all the answers

    A vendor offers a discount for bulk purchases, but this would require exceeding the allocated procurement budget. The discount could lead to long-term savings for future phases. What should the project manager prioritize?

    <p>Evaluate the long-term cost-benefit of the bulk purchase and present a case for exceeding the budget.</p> Signup and view all the answers

    A vendor is under a Fixed Price contract but requests additional funds due to inflationary pressures. The request is not covered by contract terms. How should the project manager handle this?

    <p>Enforce the original terms of the contract and deny the request.</p> Signup and view all the answers

    A project involves high-cost procurement, and the sponsor requests monthly updates on procurement progress. What is the best way to manage this?

    <p>Use Earned Value Management (EVM) to track procurement costs and provide detailed updates.</p> Signup and view all the answers

    During contract execution, a vendor consistently delivers late. The contract includes performance penalties, but enforcing them may strain the relationship. What should the project manager do?

    <p>Enforce penalties while opening discussions to improve performance.</p> Signup and view all the answers

    A project manager identifies a low-probability, high-impact risk related to vendor bankruptcy. The team suggests purchasing insurance, but the cost is significant. What is the best way to proceed?

    <p>Evaluate the cost of insurance against the EMV of the risk and decide based on value.</p> Signup and view all the answers

    The team identifies a potential opportunity to reduce costs by using a less expensive supplier. However, the supplier has not been prequalified. What is the project manager's best response?

    <p>Perform a thorough prequalification process before engaging the supplier.</p> Signup and view all the answers

    A key deliverable is delayed because the vendor's internal processes require additional time. The contract does not include time penalties. How should the project manager address this?

    <p>Negotiate a timeline adjustment with the vendor to avoid further delays.</p> Signup and view all the answers

    A project manager is conducting a procurement risk review and discovers a potential cost overrun due to fluctuating raw material prices. What is the best mitigation strategy?

    <p>Negotiate price stabilization clauses into the vendor contract.</p> Signup and view all the answers

    A sponsor requests a sole-source procurement for a critical component due to time constraints. The procurement team raises concerns about cost and reliability. How should the project manager respond?

    <p>Conduct a risk assessment of the sole-source procurement and present findings to the sponsor.</p> Signup and view all the answers

    The project involves a multi-year contract, and the vendor's initial performance is satisfactory. The sponsor suggests looking in the contract for an extended period. What should the project manager do?

    <p>Review vendor performance trends and market conditions before committing to a longer term.</p> Signup and view all the answers

    Study Notes

    Procurement Risk Management

    • Identifying Risks: Project teams must identify potential risks associated with procurement, including vendor reliability, fluctuating prices, delays, and material availability.

    • Probability and Impact: Assess the probability and impact of each risk to prioritize mitigation strategies. Quantify where possible.

    • Mitigation Strategies: Develop appropriate mitigation strategies for identified risks. This may include alternative vendors, contingency funds, and cost adjustments.

    • Contract Types: Understand different contract types (Fixed Price, Cost Plus, etc.) and their implications for risk management.

    • Risk Monitoring: Continuously monitor vendor performance and market conditions to assess the evolving risk landscape. Regular review of procurement plans is needed.

    • Communication: Communicate risk information effectively to stakeholders and sponsors to ensure alignment and decision-making.

    • Escalation: Follow a defined process for escalating significant risks to senior management.

    Risk Response Strategies

    • Avoidance: Avoiding the risk entirely by modifying or eliminating the project scope or task.

    • Mitigation: Reducing the probability and/or impact of a risk. This involves taking proactive steps to lessen the negative effects.

    • Transfer: Shifting the risk to a third party e.g., through insurance.

    • Acceptance: Acknowledging the risk and accepting its potential consequences. Contingency funds are often used to accept calculated risks.

    Vendor Performance

    • Quality: Assessing vendor reliability and quality is crucial. This typically involves thorough due diligence.

    • Timeline: Managing timelines and delivery dates is essential. Penalties and incentives can be incorporated into procurement contracts.

    • Cost: Evaluating cost-effectiveness alongside other pertinent factors to compare vendor options and maintain budget

    • Contract Management: Careful contract preparation and review are key in managing vendor expectations and holding parties accountable.

    Procurement Contract Types

    • Fixed Price: The vendor's cost is fixed, with no cost adjustments allowed.

    • Cost Plus: The vendor's costs are reimbursed, plus a fixed fee.

    • Time & Materials: The vendor is paid for the time spent and materials used.

    • Incentive Fee (CPFF, CPIF): Contracts that motivate vendors to perform efficiently based on meeting milestones or exceeding deadlines.

    • Change Orders: Understanding the process for requesting and approving changes to a contract is important.

    Procurement Process

    • Evaluation: Assessing and evaluating vendor proposals before finalizing contracts. Weighted scoring models are often used to compare vendors fairly.

    • Monitoring: Continuously monitoring the progress of the tasks and projects is very important to prevent issues.

    • Cost Management: Effective cost management is essential to control procurement costs.

    • Vendor Selection: Making informed vendor selections is a crucial part of risk mitigation. Proper evaluation and selection are critical to the success of the project.

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    Description

    Test your knowledge on identifying and managing risks in procurement processes. This quiz covers various aspects such as risk assessment, mitigation strategies, and types of contracts. Enhance your understanding of how to effectively monitor and communicate procurement risks.

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