Risk Management

Question 1

Under which of the following scenarios would you not use a decision tree?

When some future scenarios are unknown
When you need to look at the implications of not choosing certain alternatives
When the future scenarios are known
When the outcomes of some of the actions are uncertain

Answer 1

You would use a decision tree when uncertainty and unknowns exist regarding future scenarios and their outcomes, not when future scenarios are known.

Question 2

Which of the following is not a valid instance of risk transference?

Use of a Cost Reimbursable contract
Warranties
Fixed Price contracts
Performance bonds

Answer 2

A cost-reimbursable contract does not transfer risk to the seller; rather, the risk is with the buyer. Risk transference involves shifting the negative impact of a risk, along with the ownership of the response, to a third party. Risk transference nearly always involves payment of a premium to the party taking on the risk. Examples include performance bonds, warranties, and fixed price contracts.