What type of risk response is this?
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.
Mitigation is a risk response strategy where the project team takes action to reduce the likelihood or impact of a risk event. In this case, Wendy has identified a risk event with an impact of $75,000 and a 60 percent chance of happening. However, through research, the project team has found a solution that can reduce the impact to just $15,000 with a ten percent chance of occurring.
By agreeing to the $25,000 solution, Wendy is taking action to mitigate the risk event. The proposed solution will cost less than the potential impact of the risk event ($75,000) and will reduce the likelihood and impact of the risk event. This approach is typical in project management, where it is often more cost-effective to invest in mitigation measures than to suffer the full impact of a risk event.
Avoidance is a risk response strategy where the project team takes action to eliminate the risk event entirely. Transference is a risk response strategy where the project team transfers the risk to another party, such as an insurance company or a subcontractor. Enhancing is a risk response strategy where the project team takes action to increase the probability and/or positive impact of an opportunity.
In summary, Wendy's decision to agree to the $25,000 solution is an example of mitigation, which is a risk response strategy that aims to reduce the likelihood and/or impact of a risk event.
