A strong understanding of risk management grants project managers the power to prepare for potential threats, minimize their impact, or even turn them into opportunities. This in-depth insider aims at walking you through key elements concerning “Avoid, Accept, Mitigate, Enhance, and Contingency Planning”. This is precisely what PMI Risk Management Professional Certification (PMI-RMP) diligently cultivates in the psyche of aspirants.
Risk Responses: Avoid, Accept, Mitigate, Enhance
At the heart of risk management lie risk responses. They are the actions taken to tackle identified risks, which might be negative (threats) or positive (opportunities). There are four primary strategies employed to respond to these risks: Avoid, Accept, Mitigate, and Enhance.
Avoid
Risk avoidance encompasses any activities that prevent the occurrence of a particular risk. It’s the preferable strategy when a risk presents too high a potential impact on a project. Generally, risk avoidance involves modifying the project plan to completely eliminate the threat.
For example, if a project team evaluates risk and finds out that a particular software poses a high-risk factor due to its incompatibility, an avoidance strategy would then replace that software with a compatible one.
Accept
Risk acceptance is a response strategy where the project team agrees to acknowledge the risk and not take any action unless the risk occurs. This is often chosen if the risk impact or probability is low, or if the cost of other response strategies outweighs the possible risk impact.
Let’s use software development as an example, where known bugs are present but won’t critically affect the product’s functioning. The project team might accept the risk of these bugs and plan to address them in later updates.
Mitigate
Risk mitigation intends to reduce the adverse impact of a risk. A project team typically employs this strategy for high probability risks with large consequences. Mitigation could involve reducing the probability that the risk will occur, decreasing the risk’s impact, or both.
If we stick to the software development scenario, mitigation could involve rigorous testing and debugging phases to lower the risk of product malfunction at launch.
Enhance
Risk enhancement is the strategy for opportunities or positive risks. It involves adjustments to the project or plan to maximize the chances and impact of the opportunity.
For instance, if a project is ahead of schedule, enhancing the opportunity may involve allocating the extra time to other tasks or delivering the project deliverables sooner.
Contingency Planning
Contingency plans come into play when risk response strategies fail. They act as ready-to-execute plans that shield the project from the incurred risk. Successful contingency plans outline precisely what needs to be done, by whom, and in what time frame.
For instance, a contingency plan for a project might involve having backup resources in case of the loss of a team member. This way, the project can still remain on track even if someone unexpectedly leaves.
In reality, most projects will require a dynamic blend of the above strategies, tailored for each specific risk. As a PMI-RMP, you will be equipped with the tools and techniques to make well-informed decisions about responding to project risks and threats.
Consider the following comparison table as a snapshot:
| Strategy | Risk Type | Example |
|---|---|---|
| Avoid | Negative (threat) | Change of software |
| Accept | Both positive (opportunity) and negative (threat) | Leaving known bugs in software |
| Mitigate | Negative (threat) | Performing regular testing and debugging |
| Enhance | Positive (opportunity) | Accelerating tasks when ahead of schedule |
Being adept at executing these strategies and contingency planning bolsters risk management quality and equips individuals with a vital skill-set essential for thriving amid today’s volatility. Obtaining a PMI-RMP certification represents a significant step forward in mastering these skills and amplifies your competency in a competitive job market.
Practice Test
Enhancing a risk means increasing its probability or impact.
- (A) True
- (B) False
Answer: (B) False
Explanation: Enhancing a risk strategy means reducing the negative risk’s probability of occurrence or impact by increasing the opportunities.
Contingency planning is necessary only when the risk occurrence is highly probable.
- (A) True
- (B) False
Answer: (B) False
Explanation: Contingency planning is necessary even for risks with low probability but high impact. It is a proactive strategy.
Mitigation refers to changing some aspects of the project to eliminate a risk or to protect project objectives from its impact.
- (A) True
- (B) False
Answer: (A) True
Explanation: Mitigation seeks to reduce the likelihood of a risk event occurring or reduce the impact if it does occur.
Accepting a risk means doing nothing about the risk and letting it happen.
- (A) True
- (B) False
Answer: (A) True
Explanation: Acceptance is a risk response strategy where the project team decides to acknowledge the risk and not to take any preventive action unless the risk actually occurs.
Which of the following are strategies for dealing with negative risks or threats? (Select all that apply)
- (A) Enhance
- (B) Transfer
- (C) Accept
- (D) Mitigate
Answer: (B), (C) and (D)
Explanation: The strategies for dealing with negative risks or threats are Transfer, Accept and Mitigate. Enhance strategy is used for positive risks or opportunities.
Avoiding risk means that the project will have a zero risk situation.
- (A) True
- (B) False
Answer: (B) False
Explanation: Avoiding risk means changing plans to remove the risk or to protect project objectives from its impact. However, it doesn’t ensure a zero-risk situation.
Exploiting is a risk response strategy for positive risks or opportunities.
- (A) True
- (B) False
Answer: (A) True
Explanation: Exploit is a response where the project team seeks to make sure that the opportunity is realized. It is used for positive risks.
Contingency reserves are determined based on identified risks, while management reserves are set for unknown risks.
- (A) True
- (B) False
Answer: (A) True
Explanation: Contingency reserves are set for known risks while management reserves are set for unknown risks.
Risk acceptance is the minimum effort response strategy.
- (A) True
- (B) False
Answer: (A) True
Explanation: Risk acceptance requires minimal effort compared to other risk response strategies, as the team does not take any action unless the risk occurs.
The primary purpose of a fallback plan is to:
- (A) Reduce the probability of a risk
- (B) Provide an alternative approach for executing a task
- (C) Define the response if the primary risk response fails
- (D) Eliminate the risk
Answer: (C) Define the response if the primary risk response fails
Explanation: A fallback plan is a plan that is developed to address the scenario where a selected risk response action is found to be ineffective or not fully effective.
Interview Questions
What is risk mitigation in terms of project management?
Risk mitigation means reducing the impact and probability of potential project risks. It forms part of the project’s risk management strategy, which includes the identification, analysis, and resolution of risks.
How does the process of risk acceptance in project management work?
Risk acceptance in project management doesn’t reduce the probability or impact of the risk but acknowledges its existence and allows for its occurrence. This approach is usually employed when the cost of mitigating the risk outweighs the potential benefit.
What does a contingency plan in project management involve?
A contingency plan in project management is a strategy that sets out the specific steps to be taken if an identified risk materializes. The plan is designed to manage the risk and reduce its impact on the project.
How can one identify risks in the initial phases of project management?
Risks can be identified in the initial phase of project management through techniques like brainstorming, interviewing, SWOT analysis, checking assumption analysis, and using risk breakdown structures or checklists.
Define the term ‘Risk Avoidance’ in project management.
Risk avoidance in project management means taking actions to remove the risk or protecting the project from its impact. It usually involves changing the project plan to eliminate the threat.
What is meant by risk enhancement in project management?
Risk enhancement is a strategy used in project management to increase the chance of a positive risk or opportunity occurring. It involves adding or changing resources or activities to make sure the opportunity happens.
Can you mention the key elements that should be included in a risk management plan?
The key elements in a risk management plan should include risk identification, risk analysis, risk response strategies, risk monitoring and controlling, and roles and responsibilities.
What does ‘Risk Transfer’ in project management involve?
Risk transfer involves passing the risk to a third party, like an insurance company or vendor. It does not eliminate the risk but simply shifts the responsibility and management of the risk to another party.
How is stakeholder risk tolerance taken into account in risk management planning?
Stakeholder risk tolerance is a key aspect in risk management planning. During the planning process, it’s critical to engage stakeholders, understand their risk thresholds, and align risk management strategies accordingly.
Can qualitative risk analysis be enough for managing risks in a project?
While qualitative risk analysis provides valuable insights about the probability and impact of identified risks, it does not provide numerically precise data. Therefore, for projects with significant or complex risks, quantitative risk analysis can provide additional insight.
What does a typical Risk Register include?
A Risk Register in project management should include elements like list of potential risks, their severity, probability of occurrence, potential impact, risk response strategies, and the risk owner.
What role does communication play in risk management?
Communication is key to ensuring all stakeholders are aware of the project’s risks, their severity, the actions taken to handle them, and their role in managing those risks. Therefore, an effective risk management strategy includes a robust communication plan.
When is fallback planning used in risk management?
Fallback plans are used in risk management when the primary risk response strategy is not effective, or an unidentified risk occurs. It’s a plan B to be implemented to control the impact of the risk.
What do you understand by residual risks in project management?
Residual risks in project management are those risks that remain after the risk response strategy has been implemented. It’s essential to identify and review residual risks regularly through the life of the project.
How can lessons learned in risk management be useful for future projects?
Lessons learned in risk management can help in preventing or mitigating similar risks in future projects. They also improve project managers’ ability to anticipate risks and develop effective response strategies.
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