Concepts
Each strategy comes under the purview of the PMI Risk Management Professional (PMI-RMP), showcasing its importance in exam preparation.
For practitioners in the field of project management, the application of risk response strategies becomes easier with a thorough understanding of the quintessential strategies often used in various professional scenarios.
For the sake of clarity and ease of understanding, we will discuss four basic risk response strategies, relating them to instances in project management, particularly for those studying for the PMI-RMP exam.
Avoidance
This strategy is implemented when the idea is to completely circumvent the risk from the project. This is done by changing project plans or aspects relevant to the risk. For example, if an IT project involves the use of a newly released Software X with unknown cybersecurity vulnerabilities, the project manager may decide to avoid the risk by opting for a safer alternative with known performance and safety records.
Mitigation
Mitigation aims to reduce the negative impact of risks by lowering their probability or impact. This strategy is often employed when avoiding the risk is not possible. For instance, a construction project’s risk of schedule delays due to weather could be mitigated by procuring equipment that could operate under adverse weather conditions, thus reducing the risk’s impact on the project timeline.
Transfer
This strategy passes the risk to a third party, usually by outsourcing the risky task or using insurance. An example for such a strategy might be found in a project that involves building infrastructure in a location with a high risk of earthquakes. To transfer the risk, the project manager could opt for an insurance policy that specifically covers damages caused by such natural disasters.
Acceptance
As the name suggests, this strategy involves acknowledging the existence of the risk and being prepared to accept the consequences if it matures. This is often chosen when other strategies are not cost-effective or possible. For example, in a software development project, there could be impending risks linked to technology updates that could render the project obsolete. In such cases, the team might accept the risk and decide to adapt to the update, if and when it rolls out.
It is crucial to note that these strategies do not function in isolation and often a combination of these strategies is used according to the circumstances the project finds itself in.
| Strategy | When to Use |
|---|---|
| Avoidance | When the risk can be completely eliminated from the project through changes in project planning |
| Mitigation | When there is a need to reduce the probability or impact of the risk without avoiding it |
| Transfer | When passing the risk to a third party is economically or operationally viable |
| Acceptance | When it is more viable to deal with the consequences of the risk rather than investing to avoid or transfer it |
In conclusion, understanding and appropriately applying these risk response strategies is fundamental for effective risk management, and furthermore, it is a key aspect of the PMI-RMP exam as well.
Effective risk management, in turn, contributes significantly to the success of projects—ensuring that they are delivered on time, within budget, and according to scope.
Answer the Questions in Comment Section
True or False: A risk response strategy can be categorized as avoidance, mitigation, transfer, or acceptance.
- True
- False
Answer: True
Explanation: These are the classifications of risk response strategies. Each of them is used in different contexts based on the type of risk and the project at hand.
Multiple Select: Which of the following are traditional risk response strategies according to PMI?
- A. Withdrawal
- B. Acceptance
- C. Balancing
- D. Transfer
Answer: B, D
Explanation: The traditional risk response strategies according to the Project Management Institute (PMI) are avoidance, mitigation, transfer and acceptance.
Single Select: Which risk response strategy involves changing the plan to eliminate the risk or to protect the project objectives from its impact?
- A. Mitigation
- B. Avoidance
- C. Transfer
- D. Exploit
Answer: B, Avoidance
Explanation: Avoidance risk response strategy involves changing aspects of the project to eliminate the risk or protect the project objectives from its impact.
True or False: The use of insurance is an example of risk acceptance.
- True
- False
Answer: False
Explanation: Risk acceptance means that the organization takes the chance that the risk will occur, with no action. Using insurance is an example of risk transfer, as the financial risk is transferred to the insurer.
Multiple Select: What are the key components of an effective risk response strategy?
- A. Defining the risk
- B. Communicating the risk
- C. Assigning the risk owner
- D. Ignoring the risk
Answer: A, B, C
Explanation: Defining the risk, communicating it, and assigning the risk owner are all key parts of an effective strategy. Ignoring the risk is not advisable in a risk management strategy.
Single Select: In order to effectively communicate the effectiveness of a risk response strategy, you should:
- A. Keep the information to yourself
- B. Only tell the project manager
- C. Communicate the strategy to all stakeholders
- D. Only inform the client
Answer: C, Communicate the strategy to all stakeholders
Explanation: The effectiveness of a risk response strategy is best communicated when all stakeholders are informed. It promotes transparency and better collaboration.
True or False: Identifying risks early in your project improves their potential impact.
- True
- False
Answer: True
Explanation: Identifying risks early allows more time for planning and implementing risk response strategies, hence improving their potential positive impact or reducing the negative effects.
Multiple Select: Which of the following should be considered when evaluating the effectiveness of a risk response strategy?
- A. Impact on the project deadline
- B. Cost of the project
- C. The project’s quality
- D. The personal opinion of the project manager
Answer: A, B, C
Explanation: Deadlines, costs, and quality are concrete measures by which the effectiveness of a risk response strategy can be gauged, while a personal opinion is subjective and potentially biased.
Single Select: The classification of risk that aims to reduce the probability or impact of a risk to within acceptable thresholds is:
- A. Transfer
- B. Mitigation
- C. Acceptance
- D. Avoidance
Answer: B, Mitigation
Explanation: Mitigation is the categorization of risk that’s aimed at reducing the probability and or the impact of an adverse risk event to be within acceptable threshold limits.
True or False: The “enhance” risk response strategy is used for positive risks or opportunities.
- True
- False
Answer: True
Explanation: “Enhance” is a strategy used to increase the probability and/or the positive impacts of an opportunity. It’s a part of overall positive risk strategies which include exploit, share, and enhance.
Great article! Can someone explain how the avoidance strategy works in the context of PMI-RMP?
Appreciate the blog post! Very informative.
Is there a difference between mitigation and transference strategy?
Thanks for the insights!
Can someone elaborate on how to effectively implement the escalation strategy?
The examples provided really clarify different risk response strategies. Thanks!
Just wanted to point out that some risks can’t be completely avoided. Thoughts?
What documentation is necessary when transferring a risk?