The answer is to place the new subscription under Prod-MG. This is correct because management group inheritance in Azure ensures that any subscription placed under a management group automatically inherits all Azure Policy and RBAC assignments applied at that level and any parent levels, creating a hierarchical governance baseline that enforces production standards without manual configuration. On the AZ-104 exam, this concept tests your understanding of how management groups streamline policy and role assignment across multiple subscriptions, often appearing in scenario-based questions where you must choose the correct placement to avoid breaking inheritance. A common trap is assuming policies apply only to the direct parent, when in fact inheritance flows from all ancestors down to the subscription. Remember the memory tip: “Place under the parent to inherit the tenant’s intent”—if you want automatic governance, nest the subscription under the correct management group, not alongside it.
AZ-104 Manage Azure Identities and Governance Practice Question
This AZ-104 practice question tests your understanding of manage azure identities and governance. This is a configuration task: choose the command set that satisfies every stated requirement. Small differences — like 'secret' vs 'password' or 'transport input ssh' vs 'all' — change whether the answer is correct. After answering, compare your reasoning against the explanation and wrong-answer breakdown below. Once you have made your selection, read the full explanation to reinforce the concept and understand why each distractor is designed to mislead on exam day.
Exhibit
Azure hierarchy:
Tenant root
├── Platform-MG
│ ├── Prod-MG
│ └── Sandbox-MG
Requirement:
- New subscription: Finance-Prod
- It must inherit the production policy baseline and reporting settings automatically.
Based on the exhibit, where should the new subscription be placed so it inherits the production governance baseline automatically?
Azure hierarchy:
Tenant root
├── Platform-MG
│ ├── Prod-MG
│ └── Sandbox-MG
Requirement:
- New subscription: Finance-Prod
- It must inherit the production policy baseline and reporting settings automatically.
A
Place the subscription under Prod-MG.
Putting the subscription under Prod-MG ensures it inherits the production governance controls assigned there. Management group inheritance is the right tool when central IT wants future subscriptions to receive the same baseline automatically.
B
Place the subscription under Sandbox-MG.
Why wrong: Sandbox-MG would apply the wrong governance baseline and is intended for nonproduction subscriptions.
C
Create a resource group named Finance-Prod instead of assigning a management group.
Why wrong: Resource groups exist inside subscriptions and cannot replace the management group hierarchy for inherited governance.
D
Move the subscription to the tenant root and assign policies later.
Why wrong: Tenant root is broader and does not express the intended production versus sandbox boundary.
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Place the subscription under Prod-MG.
Option A is correct because placing the new subscription under the Prod-MG management group ensures it automatically inherits the Azure Policy and RBAC assignments applied at that level. Management groups in Azure allow hierarchical governance, and any subscription within a management group inherits policies and role assignments from that group and all parent groups. This enables consistent enforcement of the production governance baseline without manual configuration.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
✓
Place the subscription under Prod-MG.
Why this is correct
Putting the subscription under Prod-MG ensures it inherits the production governance controls assigned there. Management group inheritance is the right tool when central IT wants future subscriptions to receive the same baseline automatically.
Related concept
Read the scenario before looking for a memorised answer.
✗
Place the subscription under Sandbox-MG.
Why it's wrong here
Sandbox-MG would apply the wrong governance baseline and is intended for nonproduction subscriptions.
✗
Create a resource group named Finance-Prod instead of assigning a management group.
Why it's wrong here
Resource groups exist inside subscriptions and cannot replace the management group hierarchy for inherited governance.
✗
Move the subscription to the tenant root and assign policies later.
Why it's wrong here
Tenant root is broader and does not express the intended production versus sandbox boundary.
Common exam traps
Common exam trap: answer the scenario, not the keyword
The trap here is that candidates may think creating a resource group with a descriptive name (like Finance-Prod) is sufficient to apply governance, but Azure governance inheritance only flows through management group hierarchy, not through resource group naming conventions.
Detailed technical explanation
How to think about this question
Management groups in Azure form a hierarchy that supports up to 10,000 management groups in a single directory, with each subscription and management group having exactly one parent. Policy inheritance follows the management group tree, meaning that Azure Policy assignments at a management group level are applied to all child subscriptions and resource groups via the Azure Policy engine, which evaluates policies at evaluation time. In real-world scenarios, this hierarchical inheritance is critical for enforcing compliance across multiple subscriptions, such as requiring specific resource locations or tagging standards for production workloads.
KKey Concepts to Remember
Read the scenario before looking for a memorised answer.
Find the constraint that changes the correct option.
Eliminate answers that are true in general but not in this case.
TExam Day Tips
→Watch for words such as best, first, most likely and least administrative effort.
→Review why wrong options are wrong, not only why the correct option is correct.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
How this comes up in practice
A company's IT admin needs to give a contractor read-only access to production logs without sharing account credentials. Using role-based access control (RBAC) and temporary scoped permissions — not a permanent shared password — is the correct pattern. Questions like this test whether you can apply least-privilege access across cloud identity services.
Related glossary terms
Concepts from this question explained
These glossary pages explain the core terms tested in this AZ-104 question in full detail.
Manage Azure Identities and Governance — This question tests Manage Azure Identities and Governance — Read the scenario before looking for a memorised answer..
What is the correct answer to this question?
The correct answer is: Place the subscription under Prod-MG. — Option A is correct because placing the new subscription under the Prod-MG management group ensures it automatically inherits the Azure Policy and RBAC assignments applied at that level. Management groups in Azure allow hierarchical governance, and any subscription within a management group inherits policies and role assignments from that group and all parent groups. This enables consistent enforcement of the production governance baseline without manual configuration.
What should I do if I get this AZ-104 question wrong?
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
What is the key concept behind this question?
Read the scenario before looking for a memorised answer.
About these practice questions
Courseiva creates original exam-style practice questions with explanations and wrong-answer analysis. It does not publish real exam questions, exam dumps, or protected exam content. Learn why practice questions differ from exam dumps →
These questions test the same concept from different angles. Work through them to make sure you can recognise it however the exam phrases it.
Variation 1. A company has three business units. Each business unit needs its own subscription for billing and admin delegation. Corporate security wants one policy assignment to cover all current and future subscriptions in each business unit. What structure should you implement?
medium
A.Place all resources in one subscription and separate them only by resource group
✓ B.Create a management group for each business unit and place that unit's subscriptions underneath it
C.Assign the policy at each resource group because policies cannot target subscriptions
D.Create one resource group per business unit inside a shared subscription
Why B: Management groups allow you to aggregate multiple subscriptions under a single hierarchy, enabling policy assignment at the management group level that applies to all current and future subscriptions within that group. This meets the requirement for per-business-unit billing isolation (via separate subscriptions) and centralized policy enforcement across all subscriptions in each unit.
Variation 2. A cloud operations team in the Corp business unit needs to read all Azure resources in every current and future subscription under the Corp management group to prepare monthly governance reports. They must not gain access to subscriptions that belong to other business units. What scope should the administrator use when assigning the Reader role?
medium
A.Subscription scope
B.Resource group scope
✓ C.Management group scope
D.Resource scope
Why C: The Reader role assigned at the management group scope grants read-only access to all subscriptions within that management group, including future subscriptions, because Azure RBAC permissions are inherited by child resources. This meets the requirement to cover all current and future subscriptions under the Corp management group while excluding subscriptions in other business units.
Variation 3. An enterprise uses one management group to contain five subscriptions for a business unit. A compliance auditor in an Entra ID group needs read-only access to every current and future resource in all five subscriptions, but must not see resources in other business units. What is the best scope for the Reader role assignment?
medium
✓ A.Assign Reader at the management group that contains the five subscriptions.
B.Assign Reader separately at each subscription in the business unit.
C.Assign Reader at a single resource group within one subscription.
D.Assign Reader directly to each resource that the auditor should see.
Why A: Assigning the Reader role at the management group scope grants inherited read-only access to all current and future resources within every subscription under that management group, while preventing access to resources in other business units that are in separate management groups. This satisfies the auditor's requirement for a single, scalable assignment that automatically covers new subscriptions added to the management group.
Last reviewed: Jun 11, 2026
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