PMP Risk Management Part V – Assessing the Project Risk

The article provides knowledge on the topic of Risk Management for better preparation for exam.
 
In this article we shall continue our focus on the PMBOK® knowledge of Risk management concepts.
 
Plan Risk Responses
 
As the term suggests, this topic is deals with effective handling of the prioritized and quantified risks.  In risk response planning, the job is to find ways for eliminating or reducing the threats and find ways to increase positive opportunities and their impact.
 

• Do something to eliminate risks before they arise
• Do something to decrease the probability and impact of threats
• Do something to make sure the opportunities happen
• Increase the probability and impact of opportunities

For the remaining (residual) risks or threats that cannot be eliminated,

• Do something if the risk arises (contingency plan)
• Do something if the contingency plans fail (fallback plans)

Risk Response or Mitigation Strategies
 
As with the concept of risk classification, the strategies to counter risks effectively are different for risks or threats and positive risks or opportunities.
 
While planning response to a risk event, one may discover different strategies to deal with the risk leading to a choice being made in favor of one strategy over the other.  Some strategies may involve changing the approach (for example, changing WBS, planned dates, quality management plan and so on), whereas the other strategies involve coming up with a plan if the risk event occurs (contingency plan).
 
Risk Strategies for Threats

• Avoid – Mitigating the threat by eliminating the cause (remove the work package or person)

• Mitigate – Reducing the probability or impact, thereby removing the risk from list of top.  Options for reducing the probability may be separate from options for reducing the impact, however, option with the maximum probability and / or impact reduction is often chosen.

• Transfer (Deflect, allocate) – The simplest example is purchasing an insurance or outsourcing work.  The risks are mitigated by making another party responsible if the risk event occurs.  Here is where the strong connection between risk management and procurement begins.  

Important tip for all exam seekers: It’s important to note that all the risk doesn’t go away with a measure to transfer the risk.  While purchasing insurance, an unknown risk is exchanged for a known risk.  For example, while the damage that may be caused by fire is unknown, the cost impact of fire risk is the cost of purchasing insurance.  However, while planning insurance or outsourcing the work may transfer the risk, not all risk may be mitigated.  There may still be residual risk in terms of delay in delivery dates due to fire or if the outsourcing organization faces difficulties in delivering work. 
 
Risk Strategies for Opportunities

• Exploit (reverse of avoid) – Add work or change some aspect to that the ensure opportunity occurs

• Enhance (reverse of mitigate) – Increase the probability / likelihood and / or positive impacts of opportunity

• Share – Allocate ownership of the opportunity to a third party by forming a partnership or joint venture

A response strategy for both risks or threats and opportunities is:

• Accept – Do nothing and accept the negative or positive consequences.  Active acceptance may involve formulation of contingency plans and allocating some schedule and cost budget

Important Points to Remember About Strategies

• Strategies must be timely
• Strategies must be appropriate to the severity of the risk, avoid over kill
• One response can be used to impact multiple risks, by impacting the root cause
• More than one response measure may be needed for one single risk
• Involve the team and stakeholders and experts in choosing a strategy

Important tip for all exam seekers: On questions related to communication of risk related information, remember that risk response strategies must be communicated to management, stakeholders and the sponsor.  These parties need to know that you are in control of the project while approving any additional budget that may be needed for risk response strategies.
 
Please see the following article on concluding part of Plan risk responses.
 
Rattan N Whig, PMP
 
The views presented in this article are solely my personal views.  I advise all the readers to exercise discretion while adopting any views listed in this article or anywhere in the other articles for their benefits.  Another important aspect is that, whenever there is a difference or conflict in information presented in these articles and those listed in PMBOK® guide or any other publication by the PMI® institute, the dispute must be resolved in favor of the information published by PMI® institute.