Join Bob McGannon for an in-depth discussion in this video Common risk responses, part of Project Management Foundations: Risk.
All the risk analysis in the world will do you no good if you don't ultimately have a plan to address your risks so the impact on your project is minimal. The fact is, however, that most project managers don't fully consider all of the risk response alternatives available to them. To ensure you don't fall into the trap of considering only a single solution, and moving on before you should, here are the most common risk response types, all of which should be considered for each important risk on your project.
The first risk response approach is to avoid the risk. You eliminate it altogether. Maybe you remove it from scope. Maybe you change the timing of an action so that you dodge the risk. For example, let's say you're working on a project where you're designing and building an important component of a large machine, and let's say your project team believes your current plan of making the component out of fiberglass might be inadequate because the component needs to be rigid, but the fiberglass might be too flexible.
So instead, you and the team decide to make the component out of steel. You've just employed an avoidance treatment technique. You've avoided the risk of using fiberglass altogether. The second risk response is transference. You move the risk to someone else. Examples of this are taking out insurance that something bad could happen, kinda like when you get insurance on your car. The impact of the risk is transferred to the insurance company.
You don't totally eliminate the impact because you still have to pay the deductible, and the impact to your project is something you'd still have to deal with. So, the impact of the risk isn't zero. However, it's significantly reduced. Typically, with transference, you'd get some relief from the transferee, such as a payment from insurance. The third risk response is to mitigate the risk. Let me show you how you can reduce the probability of a risk occurring in this first example.
Let's say you're working on a project where you're depending on vendors to supply you with parts. If you have a vendor that's at risk of being late, you may need to have a mitigation strategy. One approach is to put a contingency contract in place with a second vendor. You may spend more, but the alternate contract should help you ensure you get things done on time. Of course, the risk of the alternate vendor being late may still happen, but overall you're driving down the probability of the risk occurring.
In a second mitigation example, you can reduce the impact of a risk occurring. Considering the scenario we discussed, when you're depending on a vendor to deliver your product on time, you can create an alternate project schedule, where you perform an installation later involving the parts you're receiving from the vendor. This might not be ideal, but if the supplier is late, the impact on your project won't be as great. In addition to avoidance, transference, or mitigation, there is another response option.
You can accept the risk. This means you do nothing to avoid the risk. It's a common response for low-priority risk events. You simply accept the risk as is. If the risk event occurs, you just absorb the impact because it's not worth the time and cost to address it. The important thing about any risk response is that you go through your options carefully. By responding to risks, you're enhancing the opportunities and reducing the threats to a project's objectives.
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- Incorporating risk management into your project
- Identifying risk
- Categorizing risks
- Performing qualitative and quantitative risk analysis
- Building a risk-response plan
- Deciding when to execute a risk-response plan<br><br>
- The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.