Risk response strategies in project management
Strategies for responding to negative risks
Any risk management strategy is aimed at managing the likelihood of risk or its consequences.
The strategy for responding to negative risks provides several options for action.
1. Risk avoidance involves changing the project management plan in such a way as to eliminate the threat caused by a negative risk, protect the project objectives from the consequences of the risk, or weaken the threatened objectives (for example, reduce the scope of the project).
Some of the risks that arise early in a project can be avoided by clarifying requirements, obtaining information, improving communication, or conducting due diligence.
Risks are avoided by simply not doing part of the project. When choosing an avoidance strategy, the project team incurs costs until the risk event occurs, and these costs are less than the possible consequences of the risk, taking into account its probability.
2. The transfer and sharing of risks imply the shifting of the negative consequences of the threat with the responsibility for responding to the risk, partially or completely, to a third party, but the risk itself is not eliminated.
Delegation of responsibility for risk is most effective for financial risks. The transfer of risk almost always involves the payment of a risk premium to the party taking the risk.
Risk transfer instruments include insurance, contract performance guarantees, guarantees and warranties, and contract terms.
3. Reducing (mitigating) risks involves reducing the likelihood of risk realization, reducing the consequences of a negative risky event to acceptable limits – the risk will either not come true, or come true, but with lesser consequences.
Taking preventive action to reduce the likelihood of a risk or its consequences occurring is often more effective than remedial action taken after a risk event has occurred.
Positive Risk Response Strategy
There are also specific strategies for responding to positive risks.
1) Thus, an exploitation strategy can be chosen to respond to risks with a positive impact, if it is necessary that this favorable opportunity is guaranteed to be realized.
This strategy is designed to eliminate all the uncertainties associated with the high-level risk, by means of measures that ensure that this favorable opportunity appears in various forms.
2) The amplification strategy measures the magnitude of an opportunity by increasing the likelihood of occurrence and/or positive impact, and by identifying and maximizing the main sources of these positive risks.
To increase this probability, one can try to alleviate or strengthen the cause of the favorable opportunity, and purposefully strengthen the conditions for its occurrence.
You can also influence sources of impact by trying to increase the sensitivity of the project to this opportunity.
General Risk Response Strategies
There are also general risk response strategies.
An acceptance strategy means that a decision has been made not to change the project plan due to the risk, or there is no other suitable risk response strategy. This tactic is appropriate if the probability of the risk is too small, or the effect of the risk is too great and its impact on the goals of the project, if implemented, calls into question the key goals of the project.
This strategy applies to both threats and opportunities. It can be active or passive and is used in the following situations:
– when it is unlikely to eliminate all risks from the project;
– the consequences of the risk are so great that it is inappropriate to develop options for its transfer in order to reduce the impact on the project;
– the probability of the risk and its consequences are small, it can be accepted since the cost of developing measures to manage the risk exceeds the cost of the consequences.