Which of the following is the MOST effective method for indicating that the risk level is
approaching a high or unacceptable level of risk?
A.
Risk register
B.
Cause and effect diagram
C.
Risk indicator
D.
Return on investment
Explanation:
Risk indicators are metrics used to indicate risk thresholds, i.e., it gives indication when a risk level
is approaching a high or unacceptable level of risk. The main objective of a risk indicator is to
ensure tracking and reporting mechanisms that alert staff about the potential risks.
Answer D is incorrect. Return On Investment (ROI) is a performance measure used to evaluate
the efficiency of an investment or to compare the efficiency of a number of different investments.
To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the
result is expressed as a percentage or a ratio.
The return on investment formula:
ROI= (Gain from investment – Cost of investment) / Cost of investment
In the above formula “gains from investment”, refers to the proceeds obtained from selling the
investment of interest.
Answer A is incorrect. A risk register is an inventory of risks and exposure associated with those
risks. Risks are commonly found in project management practices, and provide information to
identify, analyze, and manage risks. Typically a risk register contains:
A description of the risk
The impact should this event actually occur
The probability of its occurrence
Risk Score (the multiplication of Probability and Impact)
A summary of the planned response should the event occur
A summary of the mitigation (the actions taken in advance to reduce the probability and/or impact
of the event)
Ranking of risks by Risk Score so as to highlight the highest priority risks to all involved.