PMP · Question #303
A new project manager was assigned to a project during implementation. The project manager realized that new tax policies are creating a risk for a cost overrun by 25%. The project manager updated the
The correct answer is D. Ensured the risk tolerance of the company was properly updated.. The project manager failed to understand the company's risk tolerance, leading to a surprise project cancellation threat due to a cost overrun exceeding acceptable limits.
Question
A new project manager was assigned to a project during implementation. The project manager realized that new tax policies are creating a risk for a cost overrun by 25%. The project manager updated the risk register and kept the project running as normal. The CEO has announced that the project could be cancelled since the acceptable cost overrun is only 20%. The project manager was quite surprised as this was new information. What should the project manager have done to avoid this?
Options
- AImplemented the communications management plan properly.
- BImplemented the stakeholder engagement plan correctly.
- CProvided a proper risk response.
- DEnsured the risk tolerance of the company was properly updated.
How the community answered
(38 responses)- A18% (7)
- B11% (4)
- C3% (1)
- D68% (26)
Why each option
The project manager failed to understand the company's risk tolerance, leading to a surprise project cancellation threat due to a cost overrun exceeding acceptable limits.
While communication is important, the core issue wasn't a lack of communication, but a lack of critical information regarding the company's risk tolerance.
The stakeholder engagement plan ensures stakeholders are involved, but it doesn't automatically convey specific risk tolerance levels which need to be explicitly known.
A risk response is developed after understanding the risk and its impact relative to established thresholds; the PM couldn't provide a proper response without knowing the tolerance.
The project manager should have understood and confirmed the organization's risk tolerance or threshold, which represents the acceptable level of variation for a project objective. By not knowing the 20% cost overrun tolerance, the project manager could not adequately assess the impact of the 25% overrun and provide appropriate mitigation or escalation.
Concept tested: Understanding organizational risk tolerance
Source: https://www.pmi.org/pmbok-guide-standards/foundational/pmbok/project-risk-management
Topics
Community Discussion
4
Nina C.Apr 11, 2026D is correct here. The PM was working with an outdated assumption about what the company would accept for cost overruns, so without confirming the actual risk tolerance threshold the 25% estimate looked like a dealbreaker to the CEO when it should have triggered a conversation much earlier.
Brenda K.Apr 14, 2026D is the right call but the wording is rough. C is the trap here because you reflexively think risk response when you see a cost overrun, but the real failure was not knowing the 20% threshold in the first place, which is a risk tolerance gap. Flag this one fast and move on, it is a definition question dressed up as a scenario.
Yusuf A.Apr 24, 2026Picked C at first since a 25% overrun sounds like it needs a response, but a senior PM at my company pointed out that the real issue is the PM never knew the organization's risk threshold was 20%, which points to D. Quick question for anyone who's taken the exam recently: where exactly is the organization's risk tolerance documented, is it in the risk management plan or somewhere in enterprise environmental factors?
Nina C.Apr 25, 2026Yusuf is spot on that D is the better answer here, and to answer the question, risk tolerance is typically documented in the risk management plan which itself is derived from enterprise environmental factors and organizational process assets, so on the exam look for the risk management plan as the specific artifact.