Wendy's Risk Response: Cost Acceptance
Question
Wendy has identified a risk event in her project that has an impact of $75,000 and a 60 percent chance of happening.
Through research, her project team learns that the risk impact can actually be reduced to just $15,000 with only a ten percent chance of occurring.
The proposed solution will cost $25,000
Wendy agrees to the $25,000 solution.
What type of risk response is this?
Answers
Explanations
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A. B. C. D.A.
Risk mitigation implies a reduction in the probability and/or impact of an adverse risk event to be within acceptable threshold limits.
Taking early actions 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.
Incorrect Answers: B: Avoidance changes the project plan to avoid the risk altogether.
C: Transference requires shifting some or all of the negative impacts of a threat, along with the ownership of the response, to a third party.
Transferring the risk simply gives another party the responsibility for its management-it does not eliminate it.
Transferring the liability for a risk is most effective in dealing with financial risk exposure.
Risk transference nearly always involves payment of a risk premium to the party taking on the risk.
D: Enhancing is actually a positive risk response.
This strategy is used to increase the probability and/or the positive impact of an opportunity.
Identifying and maximizing the key drivers of these positive-impact risks may increase the probability of their occurrence.
The type of risk response in this scenario is mitigation, option A.
Risk mitigation is a risk response strategy that involves taking actions to reduce the likelihood of the risk event occurring or decrease the impact of the risk event. In this scenario, Wendy's project team has identified a risk event that has a 60 percent chance of occurring and will have an impact of $75,000. By researching, they found that the risk impact can be reduced to just $15,000 with only a ten percent chance of occurring. Therefore, they have proposed a solution that will cost $25,000 to mitigate the risk.
The proposed solution will help reduce the likelihood of the risk event occurring or decrease the impact of the risk event, making it a risk mitigation strategy. By implementing the proposed solution, the project team is taking proactive steps to mitigate the risk and prevent potential losses.
Avoidance, option B, involves completely eliminating the risk event from the project. Transference, option C, involves shifting the risk to another party, such as through insurance or outsourcing. Enhancing, option D, involves taking actions to increase the likelihood or impact of a positive risk event.
In summary, the proposed solution of spending $25,000 to reduce the risk impact from $75,000 to $15,000 with only a 10% chance of occurring is a risk mitigation strategy.
