PMP Practice Questions #59
In a major construction project, the project manager, Maria, is conducting a detailed review of the project’s financials against the cost baseline and examining the risk register. She has identified a significant risk: the introduction of an innovative, yet unproven construction material. While it offers potential cost savings, it also poses a high risk of causing project delays and budget overruns by up to 30% due to its uncertain performance. The project is operating under stringent budget constraints and has a fixed deadline. Any significant deviation from the cost baseline could be detrimental. Maria also notes that the contingency reserve is currently set at 10%, primarily for other identified potential risks. In this context, which risk response strategy should Maria adopt?
A) Avoid the risk by choosing a conventional, proven material, increasing initial costs but ensuring adherence to the project’s strict cost baseline and schedule.
B) Proceed with the new material, accepting the risk, while slightly increasing the contingency reserve by an additional 10% for this specific risk.
C) Reallocate resources to other innovative areas of the project to potentially offset costs, while continuing with the plan to use the new material.
D) Allocate extra funds to expedite the testing of the new material, attempting to reduce the uncertainty and potential impact on the project.
Analysis:
In this scenario, Maria, the project manager of a major construction project, is reviewing the project’s financials and risk register. She identifies a significant risk related to the use of an innovative but unproven construction material. This material poses a high risk of project delays and budget overruns by up to 30% due to its uncertain performance. The project is constrained by a strict budget and a fixed deadline, making any deviation from the cost baseline highly detrimental. The contingency reserve is set at 10% for other risks. Maria must decide on a risk response strategy that effectively manages this situation.
Analysis of Options:
Option A: Avoid the risk by choosing a conventional, proven material, increasing initial costs but ensuring adherence to the project’s strict cost baseline and schedule. This option suggests avoiding the risk by selecting a conventional and proven material, which may increase initial costs but will ensure adherence to the project’s strict cost baseline and schedule. This conservative approach is suitable in the context of stringent budget constraints and the necessity for predictability. It eliminates the risk associated with the unproven material, thereby maintaining the project’s stability and reducing the likelihood of delays and budget overruns.
Option B: Proceed with the new material, accepting the risk, while slightly increasing the contingency reserve by an additional 10% for this specific risk. This approach is more risky, as it involves accepting the potential for significant negative impacts without thoroughly consulting stakeholders. The slight increase in the contingency reserve may not be sufficient to mitigate the potential 30% overrun, making this strategy less advisable given the project’s fixed constraints.
Option C: Reallocate resources to other innovative areas of the project to potentially offset costs, while continuing with the plan to use the new material. While this might be a creative approach to managing costs, it does not directly address the risk posed by the new material, failing to provide a focused solution to the identified high-impact risk.
Option D: Allocate extra funds to expedite the testing of the new material, attempting to reduce the uncertainty and potential impact on the project. This is a mitigation strategy, aimed at reducing the risk’s severity. However, in a project with strict budget and time constraints, and where the potential negative impact is significant. This option should be considered only if there’s compelling evidence that mitigation is a better approach than avoidance.
Conclusion: Considering the stringent budget and time constraints of the project, along with the high potential impact of using the unproven material, Option A (Avoid the Risk by Choosing a Conventional, Proven Material) emerges as the most prudent risk response strategy. It aligns with the project’s need for predictability and minimizes the risk of delays and budget overruns. The other options, while offering different approaches to risk management, do not provide the same level of certainty and risk control as Option A in this specific project context.
PMP Exam Content Outline Mapping
| Domain | Task |
|---|---|
| Process | Task 3: Assess and manage risks |
| Process | Task 5: Plan and manage budget and resources |
Topics Covered
- Negative Risk Response Strategies (Avoid, Mitigate and Accept)
- Project Budget Management
