ENTR601: Risk Management

Sample Exam Questions

Question 1 (10 Marks, out of 60)
Explain in your own words what Monte Carlo Simulation is and how it can be applied to support
risk management decisions. (Hint: Imagine you are talking with someone who has never heard of
Monte Carlo simulation before; describe how it works and the reasons you might use it. You may
use diagrams to help illustrate your answer).

Question 2 (10 Marks, out of 60)

The following fault tree represents the probability of failure of a dam due to several different
causes. Using the information shown in this fault tree, calculate the overall probability of failure of
the dam. Show your working in your answer booklet.

Question 4 (20 marks, out of 60)

Your manager has asked you whether or not your organisation should implement risk management
processes. Prepare a brief summary for your employer outlining:
 What risk management is
 How it could be implemented within your organisation
 What benefits risk management could bring to the organisation
Your answer should be limited to a maximum of four pages.
(For the purposes of this question, make up an imaginary organisation if you are not currently
working. Remember, four pages of handwriting is not very much –and no tiny handwriting please!
You will need to think carefully about how you will structure your answer to get the important points
across; use bullet points to keep it concise. You could either suggest an overarching risk
management framework for the whole organisation, or how it might be used for specific projects.
Try to paint a picture for your manager of how each part of the risk management process might be
undertaken –what strategies you would use, who would need to be involved, how the results might
be presented and used etc.).
Question 1 (10 Marks, out of 100)
Explain in your own words what Monte Carlo Simulation is and how it can be applied to support
risk management decisions. (Hint: Imagine you are talking with someone who has never heard of
Monte Carlo simulation before; describe how it works and the reasons you might use it. You may
use diagrams to help illustrate your answer).

Question 3 (5 Marks, out of 100)

The normal distribution and lognormal distribution are often described as ‘fundamental’
distributions that are regularly used in risk assessments. Explain why they are fundamental
distributions.

Question 5 (5 marks, out of 100)

In New Zealand, the Engineering Lifelines process uses a form of risk scoring system for
identifying and prioritising components of networked systems that require investment to reduce
risks from major hazard events.
 Describe in your own words what a ‘risk scoring system’ is, and why you might use one.
 Identify three advantages and three disadvantages of using a risk scoring system in lieu
of a more rigorous probabilistic risk assessment process for Engineering Lifelines
assessments.

Question 6 (10 marks, out of 100)

Covello and Wolf (2003) propose 7 Cardinal Rules of Risk Communication. These are:
 Accept and involve the public as a legitimate partner
 Plan carefully and evaluate performance
 Listen to your audience
 Be honest, frank, and open
 Co-ordinate and collaborate with other credible sources
 Meet the media’s needs
 Speak clearly and with compassion
Choose a current risk communication issue and critique the risk communication strategy
associated with that issue against five of the most relevant of Covello and Wolf’s rules. Structure
your answer so that you have one paragraph per rule (i.e. 5 paragraphs in total), and either
describe how the rule has been met, or, if it hasn’t or you are unsure, suggest how it could be met.

Question 7 (10 marks, out of 100)

There are three different types of uncertainty: epistemic, ontological and aleatoric uncertainties.
 Explain in your own words what each type of uncertainty is.
 Provide two examples each (i.e. you will have a total of six examples) of how these
types of uncertainty might influence an assessment of seismic (earthquake) risk.

Question 8 (5 marks, out of 100)

Explain what is involved in the first stage of the risk management process: “Defining the Context”.

Question 1 (15 Marks, out of 100)

Describe in your own words:
 What criteria you would apply for determining if two variables are independent from each
other?
 How dependencies between variables might be included into a risk model?
 How dependencies between variables can influence the results of a risk assessment?

Question 2 (15 Marks, out of 100)

Solve the following problem. Please show your working. If no information is provided about
dependencies between variables then assume that they are independent. Imagine a community
water supply that is vulnerable to several hazards:
 The community is in a seismically active area and the annual probability of a significant
earthquake in the area is 0.005. In an earthquake, the water supply might be damaged
 in the following ways: o There is a 5% chance of damage to the water intake system. As
there is minimal storage in the water supply network, this would result in the loss of
water supply to the community.
 The water pipeline could be broken in several places. There is 10% chance that it breaks
where the water pipeline crosses a landslide prone slope. There is a 15% chance of the
water pipeline breaking where it crosses a river bridge. A break in either or both of these
locations would result in a total loss of water supply for the community.
 The community is also in a flood prone area and experiences a major flood event, on
average, once every 20 years. The last major flood in the area was nineteen years ago.
The bridge over which the water pipeline crosses is vulnerable to scour. Recent
engineering reports suggest that there is a 7% chance of the bridge failing due to scour
(and therefore rupturing the water pipeline) in the next major flood event. This would
result in total loss of water supply to the community.
 A recent Critical Infrastructure Protection risk assessment for the water supply indicates
that it has several security issues. It would be relatively easy for someone, if they were
so inclined, to contaminate the water with a toxic chemical. The risk assessment crudely
estimates the likelihood of an intentional contamination of this kind as 2% per annum,
but if successful it would have the effect of there being no drinkable water supply for the
community.
What is the probability of the water supply to the community being disrupted at least once over the
next year?

Question 4 (25 marks, out of 100)

 Imagine that you have been appointed the project manager for a major new roading
construction project. You are new to field of road construction and therefore have very
little personal experience of the risks that the project is likely to face. Having studied risk
assessment at university, you are keen to apply risk management techniques to this
project. Consider all of the different ways that you could apply risk management to
support your role of project manager, and then prepare a brief report for your senior
manager outlining:
 What risk management is and how you suggest applying risk management techniques to
support the management of this project.
 How you intend to implement the above and what potential problems you might face in
making your proposed risk management process successful

(For the purposes of this question, you can make up an imaginary roading project that you are the
project manager for – just explain what the project is at the start of your answer. As there is a lot of
information to cover in this question you will need to think carefully about how you will structure
your answer to get the important points across. Try to paint a picture for your manager of how each
part of the risk management process might be undertaken –what strategies you would use, who
would need to be involved, how the results might be presented and used etc.)

Question 5 (10 marks, out of 100)

Imagine 0.01% of men with no known risk behaviour are infected with HIV. If such a man has the
virus, there is a 99.9% chance that his HIV test result will be positive (or a 0.1% chance that his
test will be negative, even though the man has HIV). If the man is not infected with HIV, there is a
99.99% chance that his HIV test result will be negative (i.e. a 0.01% chance that his test will be
positive, even though the man does not have HIV). If a man with no known risk behaviour takes an
HIV test and it is positive, what is the probability that he actually has HIV? Please show your
working.

Question 1 (10 marks, out of 100)

Explain the difference between Monte Carlo simulation and Latin Hypercube Simulation and why
you might chose to use one type of simulation over the other. (Hint: Imagine you are talking with
someone who has never heard of either type of simulation method before. You may use diagrams
to help illustrate your answer).
Question 3 (15 Marks, out of 100)
Risk is a function of three key components: likelihood, consequence and context. ‘Establishing the
Context’ is identified as the first stage of the risk management process. Explain in your own words:
 why the ‘context’ is so important from a risk management perspective,
 how you would go about ‘establishing the context’, and
 provide examples where different ‘contexts’ might influence your risk-based decision
making.

Question 4 (5 Marks, out of 100)

Explain the purpose of a Risk Register and the key elements that should be included in a risk
register.

Question 5 (10 marks, out of 100)

There are three different types of uncertainty: ontological, epistemic and aleatoric uncertainties.
(a) Explain in your own words what each type of uncertainty is.
(b) Provide two examples each (i.e. you will have a total of six examples) of how these types of
uncertainty might influence an assessment of flooding risk to an industrial facility.

Question 2 (10 marks, out of 100)

Discuss the value of assessing the independence of variables in a risk assessment model, and
describe how you would check for independence and how you would allow for dependence in a
risk assessment model.

Question 4 (10 marks, out of 100)

Describe the Monte Carlo sampling and Latin Hypercube sampling methods, and describe the
circumstances where Latin Hypercube sampling is preferable.

Question 6 (15 marks, out of 100)

Imagine that you have been given the job of talking to residents of an area where there has been
considerable ground liquefaction, regarding whether they will be permitted to re-build their homes
on the land they own.
Consider the following seven ‘cardinal rules’ of risk communication, and write one paragraph for
each rule, describing why it is important to adhere to that rule.
 accept and involve the public as a legitimate partner;
 plan carefully and evaluate performance;
 listen to your audience;
 be honest, frank, and open;
 co-ordinate and collaborate with other credible sources;
 meet the media’s needs;
 speak clearly and with compassion.

Question 7 (10 marks, out of 100)

What is a ‘risk scoring system’ and describe how are ‘risk scores’ are obtained? What are three
advantages and three disadvantages of using such a system?

Question 10 (10 marks, out of 100)

Describe what is meant by an ‘F-N curve’ and the three common ‘tolerability bands’. Sketch the
typical F-N curve for a ‘low frequency, major consequence’ event and a ‘high frequency, minor
consequence’ event. What does the slope of the boundaries between the tolerability bands
indicate?