74 ◾ PfMP® Exam Practice Tests and Study Guide
• Status
• Trends
• Capacity and resource use
• Funding/ budget
• Strategic alignment
− Portfolio process assets
• Process assets from stakeholders
• Knowledge bases, lessons learned, historical information
− Organizational process assets
• Vision and mission
• Strategy, objectives, values
− Enterprise environmental factors
• Commercial data bases, academic studies, benchmarking, industry
studies
◾ Tools and techniques
− Weighted ranking and scoring techniques
− Quantitative and qualitative analysis
• Interdependencies, importance, timing, condence limits
• Quantitative analysis
◾ NPV, estimated NPV, ROI, Payback, IRR
• Sensitivity analysis
◾ Tornado diagram
• Modeling and simulation
◾ Monte Carlo
• Qualitative analysis
◾ Probability and impact
◾ Assumptions analysis
◾ Inuence diagrams
◾ Risk- portfolio component chart
◾ Heat maps
• Investment choice analysis
◾ Changes in strategic goals
◾ Gaps in investments in the portfolio
• Variance analysis
• Performance review measurements
◾ Outputs
− Updates
• Portfolio management plan
• Reports
• Portfolio process and organizational assets
Portfolio Risk Management ◾ 75
Practice Questions
INSTRUCTIONS: Note the most suitable answer for each multiple- choice
question in the appropriate space on the answer sheet.
1. In preparing a portfolio risk management plan, obviously risk management
is embedded as part of portfolio management. Planning, though, is helpful
as it identies areas around risk management, one of which is:
a. Prioritization algorithms
b. Risk register
c. Performance metrics
d. Risk owners
2. Assume you are working to manage and control risks that affect the portfolio.
As you do so, you need to review the portfolio and its risks and issues. An
issue is:
a. A risk that should occur
b. A condition that leads to a risk
c. Dened by root causes
d. An event with an impact on the portfolio
3. A number of different tools and techniques from the Manage Portfolio Risks
process have been useful to gather data for the Portfolio Governance Board
in order for its members to then:
a. Realign the budget to better manage risks
b. Assess the effectiveness of the risk responses
c. Determine whether sufcient risk planning has been useful
d. Consider other methods of identifying threats and turning them into
opportunities
4. Recently, your organization was acquired by a larger competitor. While your
organization will retain its name, this acquisition is a major risk to the exist-
ing portfolio. It is of such a magnitude that:
a. The portfolio risk management process should be repeated
b. Communications to different stakeholder groups should be issued
c. The next step is a risk assessment for the organization
d. It is doubtful that many of the current components in the portfolio will
be continued
76 ◾ PfMP® Exam Practice Tests and Study Guide
5. Assume you are the portfolio manager for your bank, which has ofces in
about half of the states in your country. You are focusing on those items in
which effective risk planning and risk responses lead to more positive out-
comes for the bank. One way in which you can show a standard view and
assessment of organizational risks is to:
a. Use a probability and impact matrix
b. Assess trends in terms of portfolio value
c. Determine the probability of achieving the objectives of the portfolio
d. Determine the combination of the most effective investment choices
6. Change is constant whether one is working on an operational activity, on
projects or programs, or in a portfolio management position. Risks often
result because of unplanned changes that may cause the entire portfolio to
change. As a portfolio manager, it is important to best identify any changes
that could occur, and one can do so by:
a. Discussing potential changes each time the Portfolio Review Board meets
b. Setting up a process as part of the portfolio management plan for an inte-
grated approach across the organization’s various portfolios to best man-
age changes
c. Establish and maintain a change register
d. Monitor internal and external environment changes
7. The risk owner is listed for each risk in the risk register. Together with the
portfolio manager, risk owners can:
a. Determine a fallback plan
b. Choose the most effective response strategy
c. Develop contingency plans and trigger conditions
d. Select a mix of risk response strategies
8. You are considering a possible investment choice tool to use as you work to
develop the portfolio risk management plan. Assume in your organization,
the effects of portfolio velocity is critical, which means you should use:
a. Sensitivity analysis
b. Market variability analysis
c. Rebalancing
d. Time- to- market variability
Portfolio Risk Management ◾ 77
9. In order to keep up with and hopefully surpass the competition in your
health insurance company, you realize your portfolio needs some new
components. There have been a large number of customer complaints about
the difculty of signing up for supplemental insurance, the long waits on
the phone, the poor and unfriendly web site, and the difculty in relling
prescriptions. Your company’s executive team has decided it has to invest in
new technology. However, rather than only purchase a slight upgrade, the
executives have elected to use new but unproven sophisticated technology
that will ensure upgrades then will not be needed for ten years. This situa-
tion shows:
a. The willingness to take risks based on high rewards
b. The need to ensure that the selected vendor has a denite commitment
to provide service to sustain the promised benets
c. An emphasis on the long term as it is a low risk but high reward
approach
d. Once the technology is purchased, its installation requires signicant
work in portfolio strategy
10. Your grocery store is considered to be a mid- range store in that it is large, is
not a discount store, and also is not focused exclusively on high- end organic
products. It selects products that consumers desire and discontinues others
that people seem not to purchase. However, it has stores throughout 15 dif-
ferent states, and prices and products offered change constantly. If the store
decides to offer a new product or a new service, such as a health care cen-
ter, or discontinue a service, such as the delicatessen, the risks of doing so
must be considered carefully as part of investment analysis. As the portfolio
manager, you therefore focus on:
a. Benchmarking studies
b. Time- to- market
c. Market- payoff variability
d. Market requirement variability analysis
11. The Portfolio Review Board maintains a record of its decisions. This means
that if it increases the portfolio budget to cover preventive actions to the
portfolio, such as acquiring additional resources to enhance time to market,
once this action is taken, it is necessary to update the:
a. Roadmap
b. Portfolio strategic plan
c. Portfolio management plan
d. Portfolio performance plan
78 ◾ PfMP® Exam Practice Tests and Study Guide
12. Your construction company has experienced numerous delays during the
winter since the majority of its work is in the northern US and the UK. The
severe winter has meant many projects have been canceled or delayed.
Your management team, who are the members of the Portfolio Review
Board, plan a special meeting next Friday to specically address weather-
related risks recognizing the investment threats and then the possible lack of
resources once the projects can proceed. During this meeting to evaluate the
existing risks and to add any new ones, a useful tool and technique is:
a. Investment choices
b. The efcient frontier
c. Weighted ranking and scoring
d. Probability and impact assessments
13. Your chain of restaurants has built its reputation on outstanding customer
service. It led the use of hand held credit card readers to speed the time to
receive a check and pay rather than looking at a check, providing a credit
card, giving it to a server, receiving the card and the check to sign, and then
obtaining a receipt. Now it is implementing bitcoins as a way to hasten the
checkout process. To get customers to use bitcoins, it is offering a 50% dis-
count on all food and drinks that are offered. It is providing mobile apps to
customers to use them. This is an example of a(n):
a. External positive risk
b. Internal negative risk
c. Overall portfolio risk
d. Risk tolerant company
14. There are a number of criteria to consider in identify portfolio stakeholders.
One criterion that often is overlooked is:
a. Regulatory requirements
b. The need to involve consumer groups
c. The importance of sustainability
d. Risk management strategies
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