Concepts
Risk Management forms an inevitable part of any project management task. By identifying, analyzing and responding to risks appropriately, organizations can increase the probability of their projects’ success. One of the significant areas to focus on while preparing for the PMI Risk Management Professional (PMI-RMP) Exam is indeed the concept of “Risk Response Strategy”. There are several strategies that a risk management professional can employ, depending upon the nature and severity of the identified risks.
1. Risk Response Strategy Categories
All risk responses usually fall into one of the four categories- Avoidance, Acceptance, Transference, and Mitigation.
- Avoidance: This strategy involves eliminating the threat entirely by not engaging in actions that could lead to such a risk. In other words, project changes are made to do away with the potential risk.
- Acceptance: Here, uncertainties are willingly accepted without any proactive attempts made to change or influence the risk.
- Transference: This strategy involves transferring the risk to a third party mostly through outsourcing or insurances.
- Mitigation: This approach aims to minimize the impact or likelihood of a risk by adopting certain means. Here, active steps are taken to reduce the negative effects.
Example: If a particular software has known security issues, the project team decides to use another software, thereby avoiding the risk.
Example: A design team decides not to spend resources redesigning a minor component and accepts the minor risk of failure.
Example: An organization may decide to buy insurance to transfer the risk associated with potential damage caused by a natural disaster.
Example: A project team may decide to conduct frequent and more detailed quality checks to mitigate the risk of product failure.
2. Risk Response Strategy Selection
Choosing the appropriate risk response involves risk evaluation and a comparison of alternative strategies. The goal is to select a response that is effective, efficient, and realistic given the resources and capabilities of the organization. This decision-making process typically involves an analysis of costs, benefits, and feasibility. The decision matrix is commonly used for this purpose.
| Avoidance | Acceptance | Transference | Mitigation | |
|---|---|---|---|---|
| Cost | High | None | Medium to High | Varies |
| Feasibility | Medium to High | High | High | Varies |
| Effectiveness | High | Low | Varies | Varies |
In principle, risks with high potential impacts and high likelihood should be given priority for action. However, cost considerations can sometimes lead to risks being accepted rather than avoided or mitigated.
3. Effective Risk Response Strategy Management
The key to effective risk response management is continuous monitoring and review. It’s essential to ensure that risk responses are carried out as planned and that the responses are effective in managing risks. By continually revisiting the risk register and updating this management tool as necessary, a project can stay ahead of potential risks that can capsize the project timeline or budget.
The PMI-RMP exam places a significant emphasis on risk response strategies, given their importance in effective risk management. By understanding these concepts and practices in depth, professionals can enhance their project management skills and increase their chances of success on the exam significantly.
Answer the Questions in Comment Section
True or False: Avoidance, transfer, and acceptance are the only risk responses in risk management.
- True
- False
Answer: False.
Explanation: Besides avoidance, transfer, and acceptance, mitigation and escalation are also part of risk response strategies.
Which risk response strategy aims to decrease the probability of risk occurrence by taking proactive steps?
- A. Risk Transfer
- B. Risk Acceptance
- C. Risk Mitigation
- D. Risk Escalation
Answer: C. Risk Mitigation
Explanation: Risk Mitigation aims to reduce the probability of risk occurrence by taking planned, proactive steps ahead of time.
True or False: It is not necessary to always use a specific response strategy for a specific risk.
- True
- False
Answer: True.
Explanation: Assessment of the risk’s impact and probability determines the appropriate risk response strategy, which can differ based on these factors.
Risk Transfer and Risk Mitigation are the same things.
- A. True
- B. False
Answer: B. False
Explanation: Risk Transfer refers to transferring risk to a third party, while Risk Mitigation implies taking proactive steps to lessen the impact of a risk.
What strategy accepts the consequences of the risk and makes a deliberate decision not to change the project management plan?
- A. Risk Acceptance
- B. Risk Transfer
- C. Risk Mitigation
- D. Risk Escalation
Answer: A. Risk Acceptance
Explanation: Risk acceptance is when a project team recognizes a risk but decides not to make any project changes, instead preparing to deal with its potential impact.
True or False: Risk escalation refers to the process where low-level risks are raised to higher levels of management.
- True
- False
Answer: True.
Explanation: Risk escalation is when major risks are raised to senior management who have the authority to make decisions about them.
Which risk response strategy involves passing the risk impact to another party, typically through outsourcing or insurance?
- A. Risk Avoidance
- B. Risk Transfer
- C. Risk Mitigation
- D. Risk Escalation
Answer: B. Risk Transfer
Explanation: Risk transfer aims to pass on the risk impact to another party through methods like outsourcing, procurement, or insurance.
In which risk response strategy is the risk eliminated by eliminating the cause?
- A. Risk Avoidance
- B. Risk Transfer
- C. Risk Acceptance
- D. Risk Mitigation
Answer: A. Risk Avoidance
Explanation: Risk avoidance implies eliminating the risk by eliminating the cause, hence preventing the chance of its occurrence.
True or False: When risks are escalated, the responsibility of managing the risk is transferred from the project team to a higher authority.
- True
- False
Answer: True.
Explanation: Escalation means transferring the authority to manage a particular risk from the project team to higher-level authorities.
Which strategy absorbs the impacts of risks and does not actively involve in changing the project plan?
- A. Risk Mitigation
- B. Risk Acceptance
- C. Risk Avoidance
- D. Risk Escalation
Answer: B. Risk Acceptance
Explanation: In Risk Acceptance, the team acknowledges the risk and is prepared to absorb the impacts without changing the project plan.
A risk response should always aim to eliminate the risk.
- A. True
- B. False
Answer: B. False
Explanation: Eliminating risk isn’t always feasible or advantageous. Each risk response must be tailored to the specific circumstance, which could include accepting, avoiding, transferring or mitigating the risk.
Risk Acceptance and Risk Avoidance are the same strategies.
- A. True
- B. False
Answer: B. False
Explanation: Risk Acceptance accepts the risk without changing the project plan, while Risk Avoidance eliminates the risk by eliminating its root cause.
This blog post really clarified the concept of risk response strategies for the PMI-RMP exam. Thanks a lot!
When considering risk response strategies, how do you typically distinguish between mitigation and transfer?
Great question! Mitigation reduces the probability or impact of the risk, while transfer shifts the risk to a third party, like through insurance.
I find it confusing to determine when to accept a risk rather than mitigate it. Any tips?
Acceptance is often chosen when the cost of mitigation is higher than the risk itself or if the risk is negligible.
Appreciate the explanations here, very helpful!
How does contingency planning fit into risk response strategies?
Contingency plans are part of the responses. They prepare you for specific risk events if they occur, reducing their impact.
Exactly, and it’s crucial to have those predefined actions to react quickly and effectively.
The post is informative, thanks for sharing!
I am confused about when to choose to avoid a risk rather than mitigate it.
Avoidance is used when the risk has a high probability and severe impact, and it’s feasible to change plans to eliminate the risk.
This blog is good, but it could use some real-world examples to illustrate the strategies better.