a model that uses market/systematic risk to calculate the opportunity cost/expected rate of return. Suppose the government announces that, based on a just-completed survey, the growth rate in the economy is likely to be 2 percent in the coming year, as compared to 5 percent for the year just completed. The consequence of performance failure is twice the consequence of reliability failure, four times the consequence of schedule failure and eight times the consequence of cost failure. A comprehensive database of more than 35 risk management quizzes online, test your knowledge with risk management quiz questions. Focus on the opportunity, not the venture 3. C) If a choice between accepting and transferring risk presents itself, risk should be transferred. Define specific risk handling activities with objective, measurable outcomes 3. The construction costs for the coop and chicken run were enormous and the sinister threat of avian flu hung over the area like a black cloud. He had eaten ice cream in this fashion before and knew he would soon have an ice cream headache, which could be described as: 11) While thrilling, there is a chance that you would have an accident if you elected to drive on the wrong side of a divided highway in Woodward, an outcome that could be described as: 13) The construction foreman posted a large sign requiring all work site visitors to don a hard hat and safety glasses. 59) Which of these statements about the project risk analysis and management program is BEST? Many other examples of ecological risk assessment of Bt crops have been successfully conducted by following a similar framework, including those with focus on concerns such as impact on aquatic organisms (Wolt and Peterson, 2010) and impact on other non-target species (Shu et al., 2018). The probability of failure can be calculated as: 34) The consequences of failure categories of cost, schedule, reliability, and performance were believed to be 0.25, 0.35, 0.45, and 0.55. Explain. A positive risk is a condition or situation that is favorable to the project and will have a good impact on any of your project objectives if it occurs. Investors cannot avoid this risk This is the focus of CAPM model (2) Unique Risk →Risk factors affecting only that firm →It is also known as diversifiable risk … Can it be less than that on every asset in the portfolio? So, it's not the layoffs per se that are being cheered on but the cost savings associated with the layoffs. Going back to Chapter 2, such earnings may have little to do with cash flow, so again, why are they relevant? 2. This is the individual at UVM with the accountability and authority to manage the issue. 35) With a cost factor of 0.8, a schedule rating of 0.6, a reliability rating of 0.5, and a performance rating of 0.6, the overall consequence of failure was: 36) The overall consequence of failure was 0.4 and curiously enough, the consequence of performance is twice that of reliability; the consequence of reliability is twice that of schedule; and the consequence of schedule is twice that of cost. A) Risk management follows a life cycle much as a project follows a life cycle. It is possible, in theory, to construct a zero beta portfolio of risky assets whose return would be equal to the risk-free rate. What is the consequence of failure cost? As in the previous question, it's easy to see after the fact that the investment was terrible, but it probably wasn't so easy ahead of time. Chapter 7: Managing Ethics Risk and Opportunities 1. Under their risk management identification scheme, this would fall under: 19) A method for conducting risk factor identification that consolidates the judgments of isolated anonymous respondents is: 20) A method for conducting risk factor identification that generates ideas but doesn't focus on decision making is: 21) One source of information on future risks and the leading indicators that accompany risks is: 22) The terpsichorean was familiar with the risks associated with various moves, the accountant knew financial risks forwards and backwards, while the civil engineer could quantify the risks associated with distributed loads on the temporary stage. One aspect that has set the hedge fund industry apart is the fact that hedge funds face less regulation than mutual funds and other investment vehicles. They all wish they had! Enter the Risk / Opportunity Statement in Column B that provides a little more detail about its sources and causes. Why didn't they sell out before the price declined so sharply? 60) Which of these statements about the project risk analysis and management program is BEST? Project risk list is gradually developed based on the present knowledge and data about the project. Hedge funds Alternative investments using pooled funds that employ numerous different strategies to earn active return, or alpha, for their investors. I feel that ethics risk and opportunity managements go beyond the scope of traditional risk management because there are more opportunities and resources that allow people to take advantage of the system. 6) The greatest project opportunity occurs when: A) The project is in the concept phase. Are such investors irrational? To ensure the best experience, please update your browser. D) Termination phase. Classify the following events as mostly systematic or mostly unsystematic. Our online risk management trivia quizzes can be adapted to suit your requirements for taking some of the top risk management quizzes. Why are some risks nondiversifiable? Thomas A. Edison. City leaders have completed the: 15) The marketing team would develop the advertising campaign to promote the newest product but the engineers wanted to keep all product details a secret during development. If the market values stocks based on expectations of the future, why are numbers summarizing past performance relevant? B) The risk management strategy should be unwavering throughout the entire project life cycle. Explain. He also purchased copious quantities of both items and made them readily available at the entrance. Does it make any difference whether or not the 2 percent figure was anticipated by the market? To the extent that the market views a restructuring as value-creating, stock prices will rise. Alternative investments using pooled funds that employ numerous different strategies to earn active return, or alpha, for their investors. What are the individual failure probability scores? Thus, unexpectedly low earnings often lead market participants to reduce estimates of future growth rates and cash flows; lower prices are the result. Assign a planned likelihood and consequence value to each risk handling activity 4. Their input was used as part of: 23) The probability that project revenues will NOT be sufficient to repay the debts is: 24) The probability that funds allocated to the project will be insufficient to complete it is: 25) The probability that investments made to fund the front-end activities will be lost due to project abandonment is: 26) There is always a chance that the music loving public cannot be convinced of the need to return to the 8-track format for new releases. What is the overall risk factor for the project? So, if you chose to invest in government bonds over high-risk stocks, there's a trade-off in the decision that you chose. The probability of failure is: 32) With a maturity risk of 0.3, a complexity risk of 0.4, and a dependency risk of 0.5, the probability of failure is: 33) A project team assigns probabilities of 0.1, 0.2, and 0.4 respectively to the maturity, complexity, and dependency categories. Compared to a business plan, it should: 1. Typical broad topics that can generate line items within the register include: a.This is a systematic risk; market prices in general will most likely decline. Column C Column D Column E Proposed Nature (Risk or Opport.) The probability that we don't sell one million units before the holiday season is: 27) Based on the projected selling price of $20 per unit, the manufacturer invested a substantial portion of its available cash in a machine that could produce twenty-thousand gumballs in an hour. 37) The project team toiled long into the night to develop consequence of failure scores and probability of failure scores as indicated below. True or false: The most important characteristic in determining the expected return of a well-diversified portfolio is the variances of the individual assets in the portfolio. The latter is facilitated by successful completion of this step, but not the focal point. Positive Risk. As nouns the difference between opportunity and risk is that opportunity is a chance for advancement, progress or profit while risk is a possible, usually negative, outcome, eg, a danger. 65) The PRAM step that occurs while the project work is being carried out is: 66) The tasks of reviewing and refining the manner in which we have classified risks for the project, determining if there are commonalities across the various risks we have uncovered are performed in the ________ of the project risk analysis and management model. A negative beta asset would carry a negative risk premium because of its value as a diversification instrument. Based on the CAPM, what is the expected return on such an asset? 10. Some investors are highly risk averse, and the extra possible return doesn't attract them relative to the extra risk. The difference between risk and uncertainty can be drawn clearly on the following grounds: The risk is defined as the situation of winning or losing something worthy. If consumers weren't willing to pay this much for gum, then the manufacturer faced significant: 28) The probability that legal and managerial structures put together to develop and operate the project will NOT perform well is: 29) The probability that a project to establish infrastructure in a third-world country teetering on the brink of civil war is fraught with: 30) The probability that a project will overrun its allocated duration is: 31) A project team assesses their primary risk factor's probability of failure with a maturity risk of 0.3, a complexity risk of 0.7, and a dependency risk of 0.8. A probability distribution containing the likelihood of two events occurring together. Opportunity - there is saying that the higher the risk the bigger the opportunity. Is it possible that a risky asset could have a beta of zero? Opportunity Assessment Plan A. Opportunity cost attempts to assign a specific figure to that trade-off. 39) The overall project risk factor is known to be 0.5. Be shorter 2. A formula or table of information that gives the potential outcomes and the likelihood of those outcomes. 40) The overall project risk factor is known to be 0.6. With so much technology and so many situations, traditional risk management is not sufficient enough for this … Do you agree or disagree? Given that RadNet, Inc., was up by 411 percent for 2014, why didn't all investors hold RadNet? Identify the responsible official (E) for each risk or opportunity. Usually a well-elaborated project risk list comprises descriptions of main project risks ranked according to their significance. However, if the market had been expecting a growth rate different than 2 percent and the expectation was incorporated into security prices, then the government's announcement would most likely cause security prices in general to change; prices would typically drop if the anticipated growth rate had been more than 2 percent, and prices would typically rise if the anticipated growth rate had been less than 2 percent. 67) The deliverable from the focus step of the project risk analysis and management model is: The risk is highest in the earliest phase of the project life cycle. For example, an investor buys a 10-year $100,000 Treasury note with an interest rate of 6%. We have seen that over long periods of time, stock investments have tended to substantially outperform bond investments. The service and operations branches of the company were also in the dark, so product rollout was going to be their initiation as well. A probability distribution that contains an infinite number of observations, which are analyzed using quantitative measures based on mathematical relationships and calculus. The Opportunity : To mitigate the risk and preserve or increase market share, the company changes the product design and sources different materials. B) The project is in the development phase. Our online risk assessment trivia quizzes can be adapted to suit your requirements for taking some of the top risk assessment quizzes. No, stocks are riskier. This week blog post explains how opportunity risk apply to financial business processes. Such layoffs generally occur in the context of corporate restructurings. D) Risk management is best handled using an ad hoc approach. Failure to continually perform system analyses to identify risks. Risk - Which is something where you are not sure about achieving success or profit. Some countries are becoming integrated into the global economy more quickly than others. Risk response strategies such as accept risk and research risk apply to both threats and opportunities. A new school of thought that treats the emergence of any risk as an opportunity to re-work the project. Opportunity risk occurs whenever there’s a possibility that a better opportunity may become available after having committed to an irreversible decision. The Risk: A company faces the risk of losing market share because consumers are increasingly demanding products made of mostly recycled materials, and that are fully recyclable. The PRAM model for risk management proposes that risk management follow a life cycle, The PRAM model for risk management proposes different risk management strategies be, The PRAM model for risk management proposes a "pick and choose" approach to risk, PRAM (project risk analysis and management) should be conducted as a "one-shot" activity. The project was able to mitigate risks in this fashion thanks to an aggressive: 56) The European Association for Project Management has developed an integrated program of risk management based on efforts to extend risk management to cover a project's entire life cycle. Risk can be measured and quantified, through theoretical models. 58) Which of these statements about the project risk analysis and management program is BEST? As part of an iterative process, the risk tracking tool is used to record the results of risk prioritization analysis (step 3) that provides input to both risk mitigation (step 4) and risk impact assessment (step 2).The risk mitigation step involves development of mitigation plans designed to manage, eliminate, or reduce risk to an acceptable level. Diversifiable risk: Some of the risk in holding any asset is unique to the asset in question. Since they didn't, it must have been the case that the stellar performance was not foreseeable, at least not by most. Trade-offs take place in any decision that requires forgoing one option for another. Identify which risk/opportunity category (D) is most closely related to the risk/opportunity. Can you give an explanation for your answer? As a verb risk is to incur risk (to something). Opportunity is missed by most people because it is dressed in overalls and looks like work. Once a pla… The Risk and Opportunity Management Plan, or ROMP, is a document created by each program to describe how the R/O process will \੢e implemented.\爀屲There are requirements for the contents of the ROMP is corporate policy statement CPS-070B, Risk and Opportuni尊ty Management. A. The risk scoring is … If the market expected the growth rate in the coming year to be 2 percent, then there would be no change in security prices if this expectation had been fully anticipated and priced. An opportunity assessment plan is NOT a business plan. 38) The overall risk factor for the project is known to be 0.5. A short while ago, I read through a presentation which seemingly tried to convince me that the only difference between threat and opportunity risks was the sign of the impact. It is important to note that hedge funds are generally only accessible to accredited investors as they require less SEC regulations than other funds. Indicate whether the following events might cause stocks in general to change price, and whether they might cause Big Widget Corp.'s stock to change price. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. A probability distribution that contains a discrete, or countable, number of observations. The risk that affects all companies in the economy. Critics charge that such events encourage companies to fire longtime employees and that Wall Street is cheering them on. There is always the chance of failure in all tasks, but that does not mean you should not take risk. To avert such an embarrassment, he practically inhaled his frozen confection as he raced down the hall. (1) Market Risk →Economywide sources of risk that affect the overall stock market. The homeowner's fears of: 18) The mouse executive board meeting was drawing to a conclusion; the only way they would be able to detect the presence of the cat was to tie a bell around its tail. Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk? 61) At each phase, the project risk analysis and management program should produce: 62) One phase of the project risk analysis and management program is concerned more with the project than the management of risk. It looks like your browser needs an update. Risk mitigation planning, implementation, and progress monitoring are depicted in Figure 1. If a portfolio has a positive investment in every asset, can the expected return on the portfolio be greater than that on every asset in the portfolio? In broad terms, why is some risk diversifiable? Countries that have been able to integrate are seeing faster growth and reduced poverty. 41) Use the failure probability and consequence scores shown in the table to determine the consequence of failure for the project. A positive risk is also known as an opportunity and a negative risk as a threat. This extra money is called: 48) You have agreed to paint your neighbor's house a lovely shade of chartreuse for $1500 and discover much to your dismay that the house has a second floor. Measures not only the direction of covariability (positive or negative) but also the strength of the relationship. ISO 31000:2009 Risk Management Process. Opportunity emerges from favorable project circumstances and risk from unfavorable events. a. The combination of the wealth-weighted average of the variances of the two assets and their covariance. A comprehensive database of risk assessment quizzes online, test your knowledge with risk assessment quiz questions. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters. Market risk, because it affects all market participants, cannot be diversified away and thus the risk that is relevant for determining the opportunity cost. Secondary Risks: These are those risks which may be created due to the implementation of current risk responses. The foreman is engaged in: 14) The residents of Enumclaw, Washington, live in the shadow of majestic Mount Rainier and its 26 glaciers. This program is known as: 57) Which of these statements about the project risk analysis and management program is BEST? B. Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings. This phase in the project risk analysis and management program is: 63) The first phase of a comprehensive project risk assessment should be: 64) The PRAM methodology contains an embedded feedback loop after which step? Two issues should come to mind. This information is useful for projecting future growth rates and cash flows. Every one of the nine phases of the PRAM methodology has a deliverable. Do not include potential impacts or consequences. 5. For many institutional investors, such as pension funds and life insurance companies, holding long-term bonds matches their long-term obligations. Oh no! The Cascades form a ring of fire around the Pacific Northwest and erupt with surprising regularity, although Mount Rainier hasn't erupted on a major scale since about a thousand years ago. There are two types of probability distributions. This project has a very high: 16) The house had almost been framed when an F-5 tornado ripped across the plains and turned the house back into a lumber pile, albeit not stacked as neatly as it was originally. ANSWER: c) Risk exposure Comment: Risk Exposure=probability* impact. A risk can be either positive or negative. Risk management strategy for a typical project is a high-level plan that combines tools and methods for identifying, analyzing and mitigating negative consequences (the so-called threats) that can harm the project, while exploring positive consequences (the so-called opportunities) that can potentially improve the project. Yes. D) The project is in the termination phase. It was only through the combined efforts of Matsushita Chickenworks and the City of Edmond that the project would be undertaken, since they would be able to: 46) Project penalty clauses that initiate at mutually agreed-on points in the project's development and implementation are: 47) The firm set aside a little extra money just in case an unforeseen element of cost pushed the project beyond what they had budgeted. This list is supposed to capture the most important risks in that project for deciding on risk strategy and responses. Risk cannot be transferred because ultimately your own project will suffer the consequences, Contingency reserves require a construction company to hold back some funds in an account. Mutual funds are operated by professional money managers, who allocate the fund's investments and attempt to produce capital gains and/or income for the fund's investors. Explain. 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