Risk response strategies are key to managing uncertainties and threats that could potentially harm a project. In PMI Risk Management Professional (PMI-RMP) exam, illustrating and communicating the effectiveness of risk response strategies are as important as understanding these strategies themselves.
Core Risk Response Strategies
Risk response strategies can be divided into four major categories depending on the nature of the risk. They include:
- Avoidance: As the name suggests, the goal here is to eliminate the risk by either changing the project plan or completely excluding the risk element.
- Transfer: Here, the risk, or part of it, is transferred to another party, for instance via insurance, warranties, or outsourcing.
- Mitigation: This strategy aims to reduce the probability or impact of an adverse risk event to an acceptable threshold.
- Acceptance: Sometimes, it may not be possible to avoid, transfer, or mitigate the risk. In these cases, the project team must be ready to accept the risk and deal with it if it occurs.
To illustrate the effectiveness of these strategies, consider the following example:
An IT firm has been contracted to develop a custom software for a client. The development requires the expertise of a software engineer who has a unique set of skills. The probability that this engineer could leave the company midway through the project is a risk.
- Avoidance: The company could hire an additional software engineer with the same skill set to ensure that work progress is not halted if the initial engineer leaves.
- Transfer: The company could outsource this part of the development process to a third-party firm, thereby transferring the risk.
- Mitigation: The company could invest in the training of another software engineer to gain similar skill sets and reduce the impact of the risk.
- Acceptance: Finally, the company could decide to deal with the risk if and when it occurs, by recruiting a replacement engineer at that time.
Communicating Effectiveness of the Risk Response Strategies
Communication is a fundamental aspect of risk management. The chosen risk response strategy has to be effectively communicated to all relevant stakeholders. Regular updates on the status of the risks and the mitigation processes constitute a big part of this communication.
A typical report to stakeholders might include a table like this:
| Risk | Risk Response Strategy | Comments |
|---|---|---|
| The lead engineer leaving midway through the project | Mitigation: Training another engineer | Training is currently ongoing. |
| Unexpected increase in development costs | Acceptance: Provision for contingency funds | Contingency funds are available. |
An efficient communication plan will ensure that all the stakeholders are aware of the risk scenario, which will in turn increase the effectiveness of adopted risk response strategies.
Ultimately, understanding, illustrating, and communicating the effectiveness of the risk response strategies are crucial for any risk management professional to pass the PMI-RMP exam. The ability to select an appropriate strategy based on the risk scenario, and then effectively communicate this strategy to stakeholders, could be the difference between a successful project and a failed one.
Practice Test
True or False: One of the risk response strategies includes transferring the risk.
Answer: True
Explanation: Transferring the risk is one of the strategies in risk management. It involves passing the risk to another party.
Which of the following is NOT a risk response strategy?
- A) Acceptance
- B) Avoidance
- C) Escaping
- D) Mitigation
Answer: C) Escaping
Explanation: In Risk Response Planning, the main strategies are acceptance, avoidance, mitigation, and transferring. Escaping isn’t a recognized risk response strategy.
True or False: Active acceptance is a strategy where the project team decide to not manage a risk.
Answer: False
Explanation: Active acceptance is a strategy where the project team acknowledges the risk and develops a contingency plan to cope with it if it occurs.
Which risk response strategy is used when the impact of the risk is too great to bear?
- A) Mitigation
- B) Transfer
- C) Avoidance
- D) Exploitation
Answer: C) Avoidance
Explanation: In the avoidance risk response strategy, the objective is to eliminate the threat of a risk, often by removing the cause.
A risk owner is assigned in which stage of risk management?
- A) Risk Identification
- B) Risk Analysis
- C) Risk Response Planning
- D) Risk Monitoring and Control
Answer: C) Risk Response Planning
Explanation: A risk owner is appointed during the Risk Response Planning stage of the process.
Passive acceptance of risk includes which of the following?
- A) Developing a response plan in advance
- B) Taking no action
- C) Reducing the likelihood of risk
- D) Transferring the risk to third party
Answer: B) Taking no action
Explanation: Passive acceptance is a risk response strategy where no action is taken, essentially accepting the risk without any attempts to lessen its impact.
True or False: Enhancing is a risk response strategy for positive risks or opportunities.
Answer: True
Explanation: Enhancing is a response strategy used to increase the likelihood of a positive risk or opportunity or its impact.
In the risk response plan, which aspect communicates the effectiveness of the risk response strategies?
- A) Risk severity
- B) Risk timeline
- C) Risk outcomes
- D) Risk owner
Answer: C) Risk outcomes
Explanation: The effectiveness of the risk response strategies is communicated primarily through their outcomes after implementation, tracking whether the risk was successfully avoided, mitigated, transferred or accepted.
True or False: Risk exposure is the sum of the potential impact of all identified risks.
Answer: True
Explanation: Risk exposure provides an aggregate view of the potential impact of all identified risks, assisting in the evaluation of risk response strategies.
In the context of risk response strategy, what does risk retention mean?
- A) Avoiding the risk
- B) Transferring the risk
- C) Accepting the risk
- D) Ignoring the risk
Answer: C) Accepting the risk
Explanation: Risk retention is essentially accepting the risk, usually when the cost of other strategies outweighs the cost of accepting the risk.
True or False: Exploiting a risk opportunity is a type of risk response strategy.
Answer: True
Explanation: Exploiting is indeed a strategy for responding to a risk opportunity – it’s about doing whatever you can to make sure the opportunity occurs.
The risk response strategy that aims to reduce the probability and/or impact of a risk is:
- A) Risk avoidance
- B) Risk transfer
- C) Risk mitigation
- D) Risk acceptance
Answer: C) Risk mitigation
Explanation: Mitigation aims to reduce the probability and/or impact of an adverse risk event to be within acceptable threshold limits.
True or False: In the context of project management, risks can only be negative.
Answer: False
Explanation: Risks can be both negative (threats that might prevent you from achieving objectives) and positive (opportunities that can help you achieve or even surpass your objectives).
Which risk response strategy might involve purchasing insurance or using contracts?
- A) Avoidance
- B) Mitigation
- C) Transfer
- D) Acceptance
Answer: C) Transfer
Explanation: Transferring a risk involves making another party responsible for the risk, typically by purchasing insurance or through contracts.
True or False: The primary goal of a risk response strategy is to completely eliminate all project risks.
Answer: False
Explanation: The goal of a risk response strategy is to manage the risk effectively, not necessarily to eliminate it completely. Some risks may still exist, but with lower probability or impact.
Interview Questions
What is a risk response strategy in project management?
A risk response strategy entails the action plan that a project manager will follow in the event of a identified potential risk. It aims at minimizing the effects of risks on a project.
Can you name the four primary risk response strategies in project risk management?
The four primary risk response strategies in project management include mitigation, avoidance, transfer, and acceptance.
What does the risk response strategy of mitigation entail?
Mitigation reduces the possibility of a risk event or its impact, should it occur. It involves planning and implementing actions to decrease potential threats to project objectives.
What does the risk response strategy of avoidance entail?
Avoidance entirely eliminates the risk exposure. This might involve changing plans or strategies that introduced potential risk.
Can you explain the risk response strategy of both transfer and acceptance?
Transfer involves handing over the risk impact along with the ownership of the response to a third party. Insurance is a common method of transferring risk. Acceptance is where the organization decides to accept the risk and its potential impact. This can be either active acceptance, where plans are made to deal with the risk (contingency plans), or passive acceptance, where no plans are made.
What are secondary risks in the context of risk response strategies?
Secondary risks are those that arise as a direct outcome of implementing a risk response. These should also be identified and assessed like other project risks.
How do you measure the effectiveness of a risk response strategy?
The effectiveness of a risk response strategy can be measured by analyzing the risk occurrence and its impact on the project after implementing the strategy. This involves monitoring the risk triggers and assessing the residual risk.
Can risks response strategies be changed or updated?
Yes, risk response strategies can and most likely will be changed or updated as the project progresses and as new information or changes occur.
What is a residual risk in risk management?
A residual risk is the risk that remains after all risk response strategies have been implemented. They should be documented and reviewed throughout the project lifecycle.
What is a fallback plan in risk management?
Fallback plans are developed as an alternative or back-up for when the primary risk response strategy fails to effectively curb the risk. These plans are typically developed for critical risks where the impact can be severe.
How should risks associated with ineffective risk response strategies be managed?
Risks associated with ineffective risk response strategies should be managed by reassessing the risks, developing new or alternative risk response strategies, and monitoring the outcomes continuously.
What is contingency reserve in risk response strategies?
Contingency reserve is a provision of resources that are set aside to address the identified risks that may impact the project’s schedule, cost, scope, and quality. It’s part of active acceptance strategy.
What role does communication play in the effectiveness of risk response strategies?
Communication plays a key role in executing risk response actions, reporting risks, and in post-response review. It ensures that relevant information is accessible to all stakeholders and promotes the ownership and collaborative resolution of identified risks.
Can you explain the importance of lessons learned in risk response strategies?
Lessons learned from the management of other projects, or from previous stages of the current project, can help the organization develop better risk response strategies and improve their risk management process in the future.
What is the role of Project Management team in effectively managing the risk response strategies?
The Project Management team is responsible for establishing the risk response strategy. They play a major role in identifying the potential risks, assessing the impact, planning and implementing the necessary response strategies, and communicating the strategies to all project stakeholders.
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