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To determine whether to purchase the new component, we can perform an Expected Monetary Value (EMV) analysis for both scenarios: purchasing the component and not purchasing it.

1. Purchasing the New Component:

Probability of Success: 70% (0.7)

Profit if Successful: US$500,000

EMV of Success: 0.7 * $500,000 = $350,000

Probability of Failure: 30% (0.3)

Additional Cost if Failed: US$50,000

EMV of Failure: 0.3 * (-$50,000) = -$15,000

Cost of Component: -$100,000

Total EMV: $350,000 (success) - $15,000 (failure) - $100,000 (cost) = $235,000

2. Not Purchasing the New Component:

Probability of Failure: 80% (0.8)

Cost if Failed: US$250,000

EMV of Failure: 0.8 * (-$250,000) = -$200,000

Probability of Success: 20% (0.2)

Profit if Successful: US$0 (assuming no additional profit without the component)

EMV of Success: 0.2 * $0 = $0

Total EMV: $0 (success) - $200,000 (failure) = -$200,000

Comparing the two scenarios, purchasing the new component yields a positive EMV of $235,000, whereas not purchasing it results in a negative EMV of -$200,000. Therefore, from a risk management perspective, it is advisable to purchase the new component.

PMI Risk Management Study Guide References:

The PMI-RMP Exam Preparation Study Guide discusses the application of Expected Monetary Value (EMV) analysis in decision-making under uncertainty, providing a structured approach to evaluate potential financial outcomes.

A risk management plan is the foundational document for risk management. It defines processes, ownership, strategies, and baselines, and must be developed first before other detailed risk actions. PMBOK® Guide specifies:

"The risk management plan is the key document that outlines the approach, processes, roles, responsibilities, and documentation requirements for risk management."

— PMBOK® Guide, 6th Edition, Section 11.1

Adding the identified risk to the risk register is the best action that the risk manager can take to address this risk. The risk register is a document that records the identified risks, their characteristics, their status, and their responses. By adding the risk to the risk register, the risk manager can ensure that the risk is not overlooked or ignored, and that it will be subjected to further probability and impact analysis to determine its priority and response strategy. Accepting the identified risk because other stakeholders feel that there are higher priority risks to address is not a good practice, as it may lead to overlooking a potentially significant risk that could affect the stakeholder’s team. Mitigating the identified risk in order to reduce the probability of impacting the stakeholder’s team is not advisable, as it may be a premature or unnecessary action without proper analysis of the risk probability and impact. Escalating the identified risk to the project sponsor and allowing them to determine the best course of action is not appropriate, as it may be an overreaction or a sign of lack of competence from the risk manager, who should be able to handle the risk identification and analysis process. References: PMI Risk Management Professional (PMI-RMP)® Exam Content Outline1, PMI Practice Standard for Project Risk Management2, Risk Management Professional (PMI-RMP)® Cert Guide3

The risk manager should perform a quantitative risk analysis to determine the potential impact of risks on the project's completion date. This will help in providing a more accurate project completion date to the customer, considering the risks and their potential effects on the project schedule.

 According to the PMI Risk Management Professional (PMI-RMP)® Examination Content Outline1, one of the tasks in the domain of Risk Analysis is to perform quantitative risk analysis using techniques such as Monte Carlo simul-ation, decision tree analysis, sensitivity analysis, etc., to quantify the possible outcomes for the project and their probabilities, and to evaluate the cost and schedule impacts of risks1. In this scenario, the risk manager should perform a quantitative risk analysis and update the results, because the project costs have increased significantly and the customer has imposed a strict deadline for the project completion. A quantitative risk analysis will help the risk manager to estimate the probability of meeting the project objectives, such as cost and schedule, and to determine the appropriate contingency reserves for the project. A quantitative risk analysis will also provide more accurate and reliable information for the customer and the project team, and will support the risk response planning process2. References: 1: PMI Risk Management Professional (PMI-RMP)® Examination Content Outline, page 92: A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition, pages 431-432.

The project manager should discuss the identified risks with the project team to ensure that everyone is aware of the potential risks and can provide input on the likelihood and impact of each risk. This collaborative approach will help in developing a comprehensive risk management plan.

The project manager should discuss and evaluate the identified risks with the project team, as this is part of the risk identification process. The project manager can use their experience from previous projects to identify potential risks that may occur again on the new project, but they should also involve the project team to obtain their input and perspectives. The project team can help the project manager to validate, refine, and prioritize the identified risks, as well as to suggest possible risk responses. The project manager should document the identified risks and their characteristics in the risk register, which is a tool for risk management. The other options are not appropriate actions for the project manager to take. Implementing the risk response strategies into the risk plan is premature, as the project manager should first analyze and evaluate the risks before deciding on the best response strategies. Informing the sponsor that these risks should be added according to experience is not sufficient, as the project manager should also consult the project team and other stakeholders to ensure that all relevant risks are identified and assessed. Adding the risks to the risk register and determining a contingency is part of the risk analysis and response planning processes, which come after the risk identification process. The project manager should first discuss and evaluate the identified risks with the project team before moving to the next steps of risk management. References: 2, 3, [5]

A stakeholder impact and influence analysis is a technique to identify the level of interest and power of each stakeholder, and to assess how they may affect or be affected by the project outcomes. It can help the risk manager to understand the stakeholder’s perspective and expectations, and to communicate with them effectively. In this case, the risk manager should perform a stakeholder impact and influence analysis to understand why the major investor is about to drop their intention to continue executing the project, and to address their concerns and needs. A risk impact analysis, a risk reserve analysis, and a procurement analysis are not relevant to the stakeholder’s decision, and would not help the risk manager to understand their rationale. References: PMI Risk Management Professional (PMI-RMP)® Exam Content Outline1, PMI Practice Standard for Project Risk Management2, Risk Management Professional (PMI-RMP)® Cert Guide3

Assigning a risk owner is a foundational principle in risk management, ensuring that each risk has someone fully accountable for monitoring, controlling, and responding to the risk. According to the PMBOK® Guide:

"Risk owners should be assigned to each risk. The risk owner is the person responsible for planning an appropriate risk response and ensuring it is implemented as planned."

— PMBOK® Guide, 6th Edition, Section 11.3.2.1

Without a clearly assigned risk owner, responsibility can be ambiguous, leading to gaps in monitoring and response.

The risk register is a dynamic document that must capture not only planned risk responses but also the actual outcomes of risks and the effectiveness of risk responses implemented. According to the PMBOK® Guide:

“The risk register should be updated with information on the results of risk responses, risk event outcomes, and actual effectiveness of the actions taken. This enables ongoing learning and continuous improvement in risk management.”

— PMBOK® Guide, 6th Edition, Section 11.7.3.2 (Project Document Updates: Risk Register)

This ensures that both the realized outcomes of risks and the success or failure of responses are tracked for future reference and lessons learned.

Lessons learned from previous projects are critical for effective risk identification because they provide insights into what risks materialized, how they were managed, and what could have been improved. According to the PMBOK® Guide:

“Lessons learned from previous projects are organizational process assets that should be reviewed during risk identification to avoid repeating past mistakes and to leverage successful risk responses.”

— PMBOK® Guide, 6th Edition, Section 11.2.2.1 (Organizational Process Assets)

These assets enable proactive identification and management of similar risks in the new project.