Implementing risk response is a crucial aspect of project management and forms an essential component of the PMI Risk Management Professional (PMI-RMP) exam. It involves creating strategies to counteract identified risks, thereby safeguarding the project from potential threats and maximizing opportunities. A thoroughly executed risk response strategy ensures that uncertainties do not alter the project’s desirable outcomes.
I. Risk Response Strategies
Broadly, there are two types of risk responses for two types of risks – negative risks (threats) and positive risks (opportunities). PMI recognizes four strategies for each type of risk:
1. Negative Risks Response Strategies:
- Avoid: This strategy involves changing the project plan to entirely eliminate the impact of the risk.
- Transfer: This involves shifting the impact of the risk to a third party. Examples can include outsourcing or purchasing insurance.
- Mitigate: This involves taking steps to reduce the impact or probability of the risk.
- Accept: This involves recognizing the risk and developing a contingency plan, should it occur.
2. Positive Risks Response Strategies:
- Exploit: This strategy ensures that the opportunity is realized by eliminating the uncertainty associated with a particular upside risk.
- Share: This involves assigning the ownership of the opportunity to a third party to maximize the chances of it being realized.
- Enhance: This involves increasing the probability and/or the positive impacts of an opportunity.
- Accept: This involves being willing to take advantage of the opportunity if it comes along, but not actively pursuing it.
When these strategies are plotted together they form a Risk Response Matrix.
II. Creating a Risk Response Plan
Properly creating a Risk Response Plan involves following these steps:
- Identify the Risks: Involves understanding the potential risks that could impact the project.
- Assess the Risks: Assess the probability and impact of potential risks.
- Prioritize the Risks: Prioritize the risks according to their potential impact on the project.
- Choose Risk Response Strategies: As explained above, choose the right strategy for each risk.
- Develop and Implement Action Plans: Develop contingency plans and assign risk owners.
- Monitor Risks: Continue to monitor risks throughout the project, modifying the plan as necessary.
III. Implementing the Risk Response Plan
Once a risk response plan is finalized, it’s time to implement it. The implementation stage involves executing the planned responses when risks occur and monitoring risk triggers. This aids in adapting the plan to the changing circumstances of a project as it progresses.
IV. Example
Consider a software development project. A potential risk could be that the software might not be compatible with a key piece of hardware. The project manager, using the risk assessment matrix, identifies this as a high probability and high impact risk. A possible risk response strategy could be to avoid the risk by ensuring that the development team has accurate hardware specifications to consider during the development process.
Conclusion
To conclude, risk response implementation forms the core of risk management tasks in project management. An effective risk response strategy can help prevent threats, exploit opportunities, and achieve project goals successfully. By properly implementing risk responses, you are better prepared for the uncertainties along the project life cycle, which is a key competency tested in the PMI Risk Management Professional (PMI-RMP) exam. Therefore, learning and refining your knowledge in this area is bound to be beneficial to both; your real-life project management tasks and your PMI-RMP exam preparation.
Practice Test
The risk response strategy ‘Avoid’ eliminates the risk by eliminating its cause. Is this true?
- True
- False
Answer: True
Explanation: ‘Avoid’ is a risk response strategy that is designed to completely eliminate the risk or to protect the project from its impact.
Acceptance is a passive risk response strategy. Is this true?
- True
- False
Answer: True
Explanation: Acceptance is not actively changing the project management plan but accepting the likelihood and impact of the risk.
Which of the following can be a secondary risk?
- A risk that arises as a direct result of implementing a risk response.
- A risk that remains after a risk response has been implemented.
- Both of the above.
- None of the above.
Answer: Both of the above.
Explanation: Secondary risks can either be risks that arise as a direct result of implementing a risk response or risks that remain after a risk response.
Contingency reserves are used for risks that have been accepted. Is this true?
- True
- False
Answer: False
Explanation: Contingency reserves are used for risks for which specific responses have been developed.
Transference is a strategy to shift the impact of a risk to a third party along with the ownership of the response. Is this true?
- True
- False
Answer: True
Explanation: The strategy of transference shifts the risk to a third party, not the project.
Enhance is a risk response strategy used for opportunities. Is this true?
- True
- False
Answer: True
Explanation: Enhancing is an approach to increase the probability and/or the positive impact of an opportunity.
Which of the following are considered active risk acceptance strategies?
- Establishing a contingency reserve
- Establishing an allocated reserve
- Both of the above
- None of the above
Answer: Both of the above.
Explanation: Active acceptance strategies often involve setting up reserves, like contingency reserves or allocated reserves.
Risk urgency assessment helps in identifying the urgency of response needed by the identified risk. Is this true?
- True
- False
Answer: True
Explanation: Risk urgency assessment analyzes the risks which require quick responses given their magnitude of impact or proximity of occurrence.
It is important to document the results of quantitative risk analysis. Is this true?
- True
- False
Answer: True
Explanation: Documenting the results of quantitative risk analysis allows for better understanding and response to risks.
Which of the following is a common strategy to exploit opportunities?
- Share
- Enhance
- Exploit
- Transfer
Answer: Exploit
Explanation: The strategy of exploitation seeks to eliminate the uncertainty related to a particular upside risk by ensuring the opportunity definitely happens.
Mitigation seeks to reduce the probability of the occurrence of a risk to a level that is acceptable. Is this true?
- True
- False
Answer: True
Explanation: Mitigation works to reduce the probabilities and/or impacts of adverse risks to acceptable thresholds.
Who should be involved in the implementation of risk responses?
- Project team
- Stakeholders
- Both of the above
- None of the above
Answer: Both of the above.
Explanation: Implementing risk responses should be a collaborative effort involving both the project team and stakeholders.
Is it mandatory to update the risk register after implementing a risk response?
- True
- False
Answer: True
Explanation: Updating the risk register after implementing a risk response allows documentation of changes and provides a comprehensive view of the risk landscape.
Monitor risk is the last process in the project risk management. Is this true?
- True
- False
Answer: True
Explanation: Monitor risk is the final step in project risk management where the identified and treated risks are monitored for any changes or unexpected occurrences.
Not all risk responses need to be cost effective. True or False?
- True
- False
Answer: False
Explanation: All risk responses need to be cost-effective in order to provide the best results with the given resources.
Interview Questions
What is risk response in project management?
Risk response in project management is the process of developing strategic options and determining actions to enhance opportunities and reduce threats to the project’s objectives. It follows the risk assessment phase in the risk management process.
What are the four types of risk responses?
The four types of risk responses are Avoid, Transfer, Mitigate, and Accept.
What is ‘Avoid’ in risk response?
Avoiding a risk involves reorganizing the project plan in a way that eliminates the risk or protects the project objectives from its impact. This is commonly used for risks that have a potentially high impact on project objectives.
What does ‘Transfer’ mean in risk response?
Transferring a risk involves finding a third party who is willing to own the risk. This can be done through outsourcing, insurance, or other contractual agreements.
What is ‘Mitigate’ in risk response?
Mitigation involves reducing the probability and/or impact of an adverse risk event to an acceptable threshold. This is the most common risk identification technique.
What is meant by ‘Accept’ in risk response?
Acceptance means accepting the risk and working on it only if and when the risk occurs. This strategy is used for risks that have a low impact on the project objectives.
What is a residual risk in project management?
A residual risk is a risk that persists even after the risk response has been implemented. These risks must be acknowledged and monitored throughout the project.
What is a contingency plan in project risk management?
A contingency plan is a predefined action plan that is to be implemented when a particular risk event occurs. It’s a part of risk response planning.
What is meant by ‘active acceptance’ in risk response?
Active acceptance involves creating a contingency plan to execute if and when the risk occurs. The project manager anticipates the risk and prepares for it.
What is passive acceptance in risk response?
Passive acceptance is a strategy in which the team decides to deal with the risk as it occurs, without any specific preparation or pre-planned response.
How are risk responses tracked?
Risk responses are tracked and evaluated through the use of a risk register, which is a document that should be updated throughout the life of the project, with the outcome of each risk response documented for future reference.
What is the risk response owner’s role in risk management?
The risk response owner is the individual or entity responsible for managing the risk, including planning, executing, and monitoring the risk response.
How does impact analysis assist in risk response?
Impact analysis assists in risk response by determining potential outcomes, quantifying the potential impact of each risk, and prioritizing responses based on the severity of the risks and impact on the project.
In what phase of the project is risk response most critical?
Risk response is most critical during the planning phase of the project as it is essential to identify potential risks and develop response strategies early to prevent project derailment.
What tool or technique is most commonly used to monitor risk response?
The most commonly used tool in monitoring risk response is the Risk Reassessment tool. This involves reintroducing risks to the risk management process and reassessing their impacts and probabilities.
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