Concepts
Project Management Professional (PMP) Exam: Risk Management Options
Within the Project Management Professional (PMP) exam, candidates must demonstrate a clear understanding of various Risk Management options. Managing risks effectively is crucial to ensure the successful completion of any project. The PMP framework recognizes certain strategies that can be used effectively to manage risks throughout a project’s lifecycle. These strategies include avoidance, acceptance, transfer, mitigation, and enhancement.
Risk Avoidance:
Risk avoidance is simply about changing the project plan to circumvent any risk. It can also be considered as changing the scope of the project or it could mean abandoning the project entirely if the risk is too great. For instance, if a technical project involves using a new programming language that your team is unfamiliar with, you might decide to avoid the risk of delays by using a language that your team is proficient in.
However, risk avoidance can be costly or time-consuming. Hence, this option should be reserved for devastating risks that cannot be handled by other means.
Risk Acceptance:
When risks are not significant enough to justify other risk responses or when other responses are not viable, acceptance is adopted. This can be in both passive acceptance where no plans are made unless the risk occurs or active acceptance where contingency plans are established and provisioned for.
For example, accepting the risk of bad weather during an outdoor event, teams can develop a contingency plan that might include securing an indoor venue or ensuring a reschedule date.
Risk Transfer:
Transferring the risk shifts the impact of the risk to a third party. This doesn’t eliminate the risk but it does change the ownership and management of the risk. For instance, Insurance policies are classic examples of risk transfer where one party agrees to bear the risk in return for a premium.
In project management, another common method of risk transfer is through contracts. If a project element presents significant risk, it could be contracted out, thereby transferring the risk to another party.
Risk Mitigation:
Mitigating a risk involves lessening the potential impact or probability of the risk. For example, making certain preparations, like regularly backing up files and data, is a type of risk mitigation. Risk mitigation strategies might include adding extra steps in a project’s plan or preparing backup resources.
Risk Enhancement:
Risk enhancement is the technique of increasing the probability or impact of opportunities. It is a form of risk modification that seeks to increase the exposure to a particular risk for the possibility of greater gain. This strategy is often used in innovative projects where the reward could far outweigh the risk.
In conclusion, the careful analysis and selection of the right risk management option can significantly enhance the chances of project success. The PMP exam leverages these universally recognized practices and expects candidates to demonstrate a clear understanding of the effective implementation in a project scenario. Utilizing these risk management options can help you feel more prepared and confident when taking on your PMP exam.
Answer the Questions in Comment Section
True or False: Determining risk management options is an optional process in project management.
- Answer: False
Explanation: Determining risk management options is a necessary part of project management. It helps identify, assess, and prepare for any risks that may impact the project’s objectives.
Which of the following are common risk management strategies?
- A) Avoidance
- B) Mitigation
- C) Acceptance
- D) Ignoring
- Answer: A) Avoidance B) Mitigation C) Acceptance
Explanation: Avoidance, Mitigation, and Acceptance are common strategies for dealing with risk. Ignoring a risk is not a proper risk management strategy.
What is an example of a transfer risk management strategy?
- A) Training staff
- B) Purchasing insurance
- C) Conducting additional research
- D) None of the above
- Answer: B) Purchasing insurance
Explanation: A transfer risk management strategy involves transferring the risk to another party, such as by purchasing insurance.
True or False: Residual risks are those that are left over after all risk response strategies have been implemented.
- Answer: True
Explanation: Residual risks are the risks that remain after all risk responses have been implemented.
Which is NOT a type of risk management process?
- A) Risk identification
- B) Risk analysis
- C) Risk reaction
- D) Risk distraction
- Answer: D) Risk distraction
Explanation: There’s no process called “Risk distraction” in risk management. The other three, Risk identification, Risk analysis and Risk reaction are a part of the risk management process.
True or False: For small projects, risk management might not be necessary.
- Answer: False
Explanation: Even for small projects, it is necessary to manage risks. The size of the project does not determine the potential for risk occurrence.
What is the main purpose of risk management?
- A) To prevent risks
- B) To avoid risks
- C) To manage risks
- D) To predict risks
- Answer: C) To manage risks
Explanation: The main purpose of risk management is to manage risks, not to completely prevent, avoid, or predict all risks.
In terms of risk response development, what does “avoid” mean?
- A) Accepting that some risks are unavoidable
- B) Changing plans to eliminate the threat posed by a risk
- C) Attempting to reduce the impact of a risk
- D) Transferring the threat of a risk to another party
- Answer: B) Changing plans to eliminate the threat posed by a risk
Explanation: In risk response development, “avoid” means altering the project plan to eliminate the threat or to protect the project objectives from its impact.
True or False: Risk management strategies should be chosen based on the level of risk and the potential effect of the risk on the project.
- Answer: True
Explanation: Risk management strategies need to be selected based on the level of risk and the potential effect that the risk can have on the project.
The term “mitigation” in risk management refers to ____.
- A) Avoiding the risk
- B) Transferring the risk to another party
- C) Accepting the risk as it is
- D) Reducing the impact or likelihood of the risk
- Answer: D) Reducing the impact or likelihood of the risk
Explanation: Mitigation refers to actions that reduce the severity, likelihood, or impact of a risk.
Which among these is a reactive approach to risk management?
- A) Risk seeking
- B) Risk avoidance
- C) Risk acceptance
- D) Risk denial
- Answer: C) Risk acceptance
Explanation: Risk acceptance is a reactive approach to risk management, where no action is taken until the risk occurs.
True or False: Risks cannot be both threats and opportunities.
- Answer: False
Explanation: Risks can be both threats and opportunities. A threat is a negative risk that could harm the project, while an opportunity is a positive risk that could benefit the project.
Great post about risk management options! This blog helped clarify a lot of points.
In my experience, using a thorough risk register is crucial for identifying potential risks early in a project.
Does anyone here use qualitative risk analysis more frequently than quantitative? I find qualitative a lot more practical.
For mitigating risk, I’ve always found that having contingency plans in place is key. What methods do you prefer?
Thanks for this blog post! Very well written and informative.
I think the blog should delve deeper into risk mitigation strategies. It’s a bit too general for my taste.
How often do you update your risk management plan during a project?
How effective is using a SWOT analysis for risk management?