PFMP · Question #712
Assume you are the portfolio manager for your pork producing company, the market leader in your country. Over time, the industry has recovered from trichinosis as a risk. Your company has added new…
The correct answer is B. Risk management is essential. A new industry-wide epidemic threatening profits illustrates that risk management is essential in portfolio management, as external threats require proactive identification and response.
Question
Assume you are the portfolio manager for your pork producing company, the market leader in your country. Over time, the industry has recovered from trichinosis as a risk. Your company has added new components to its portfolio, and many have been to demonstrate to the public that its products are safe. It implemented the Agriculture Department's and Food and Drug Administration's Hazard Analysis and Critical Control Point (HACCP) regulations and is enhancing its image as 'the other white meat'. However, now the entire industry is faced with a new epidemic known as porcine epidemic virus, which is affecting pigs in 22 different states, and profits have decreased significantly. New components now must be added to the portfolio. This situation shows:
Options
- AResource re-allocation is required
- BRisk management is essential
- CThe ROI of the new components must be determined
- DPortfolio rebalancing has led to the new components being in the top five priority list
How the community answered
(31 responses)- A16% (5)
- B74% (23)
- C3% (1)
- D6% (2)
Why each option
A new industry-wide epidemic threatening profits illustrates that risk management is essential in portfolio management, as external threats require proactive identification and response.
Resource re-allocation may be a consequence of the epidemic, but the root cause and primary lesson of the scenario is the need for ongoing risk management.
The porcine epidemic virus represents an unplanned external threat that significantly impacts the portfolio's financial performance and strategic direction. This scenario demonstrates that risk management is essential because portfolios must continuously identify, assess, and respond to both threats and opportunities, including systemic industry-level risks that can fundamentally alter component viability.
Determining ROI of new components is a financial analysis step, not the core lesson illustrated by the epidemic scenario.
Portfolio rebalancing is a process outcome, not the overarching insight demonstrated; the scenario illustrates why risk management drives that rebalancing.
Concept tested: Portfolio risk management - identifying and responding to external threats
Source: https://www.pmi.org/pmbok-guide-standards/foundational/standard-for-portfolio-management
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