Section: Volume E
Explanation:
11.5.2.1 Strategies for Negative Risks or Threats
Three strategies, which typically deal with threats or risks that may have negative impacts on project objectives if they occur, are: avoid, transfer, and mitigate. The fourth strategy, accept, can be used for negative risks or threats as well as positive risks or opportunities. Each of these risk response strategies have varied and unique influence on the risk condition. These strategies should be chosen to match the risk's probability and impact on the project's overall objectives. Avoidance and mitigation strategies are usually good strategies for critical risks with high impact, while transference and acceptance are usually good strategies for threats that are less critical and with low overall impact. The four strategies for dealing with negative risks or threats are further described as follows:
Avoid. Risk avoidance is a risk response strategy whereby the project team acts to eliminate the threat or
protect the project from its impact. It usually involves changing the project management plan to eliminate the threat entirely. The project manager may also isolate the project objectives from the risk's impact or change the objective that is in jeopardy. Examples of this include extending the schedule, changing the strategy, or reducing scope. The most radical avoidance strategy is to shut down the project entirely. Some risks that arise early in the project can be avoided by clarifying requirements, obtaining information, improving communication, or acquiring expertise.
Transfer. Risk transference is a risk response strategy whereby the project team shifts the impact of a threat
to a third party, together with ownership of the response. Transferring the risk simply gives another party responsibility for its management-it does not eliminate it. Transferring does not mean disowning the risk by transferring it to a later project or another person without his or her knowledge or agreement. Risk transference nearly always involves payment of a risk premium to the party taking on the risk. Transferring liability for risk is most effective in dealing with financial risk exposure. Transference tools can be quite diverse and include, but are not limited to, the use of insurance, performance bonds, warranties, guarantees, etc. Contracts or agreements may be used to transfer liability for specified risks to another party. For example, when a buyer has capabilities that the seller does not possess, it may be prudent to transfer some work and its concurrent risk contractually back to the buyer. In many cases, use of a cost-plus contract may transfer the cost risk to the buyer, while a fixed-price contract may transfer risk to the seller.
Mitigate. Risk mitigation is a risk response strategy whereby the project team acts to reduce the probability
of occurrence or impact of a risk. It implies a reduction in the probability and/or impact of an adverse risk to be within acceptable threshold limits. Taking early action to reduce the probability and/or impact of a risk occurring on the project is often more effective than trying to repair the damage after the risk has occurred. Adopting less complex processes, conducting more tests, or choosing a more stable supplier are examples of mitigation actions. Mitigation may require prototype development to reduce the risk of scaling up from a bench-scale model of a process or product. Where it is not possible to reduce probability, a mitigation response might address the risk impact by targeting linkages that determine the severity. For example, designing redundancy into a system may reduce the impact from a failure of the original component.
Accept. Risk acceptance is a risk response strategy whereby the project team decides to acknowledge the
risk and not take any action unless the risk occurs. This strategy is adopted where it is not possible or cost- effective to address a specific risk in any other way. This strategy indicates that the project team has decided not to change the project management plan to deal with a risk, or is unable to identify any other suitable response strategy. This strategy can be either passive or active. Passive acceptance requires no action except to document the strategy, leaving the project team to deal with the risks as they occur, and to periodically review the threat to ensure that it does not change significantly. The most common active acceptance strategy is to establish a contingency reserve, including amounts of time, money, or resources to handle the risks.
