Responding to Risks - Project Management

The amount of effort you'll put into the development of risk response plans depends on the nature of the risk. Some risks require extensive plans, some may need only to be noted and accounted for in an overall plan, and others need only to be listed on the risk list.

Risk response planning is a matter of deciding what steps to take should the risk event occur. It also includes assigning individuals (or departments) the responsibility of carrying out the risk response plan if the risk event occurs. Be sure to note the individuals or department that's responsible for enacting the response plan in the plan documentation.

As we discussed in the previous sections, the organization's risk management policies contain the guidelines you should follow for determining which risks need response plans. Generally speaking, those risks with a high probability of occurring that also have a medium-to-high impact should have a plan.

There are several recognized strategies you can use to reduce or control risks: accepting, avoiding, transferring, and mitigating. It's important to use the right strategy for each risk so that each risk impact is dealt with adequately and in the most efficient way possible. It's not a bad idea to designate a secondary strategy for the highest impact risks. We'll look at each of the strategies in more depth below.

Accepting

This first strategy is straightforward. Accepting the risk means that you won't make any plans to deal with the impacts of the risk event, and if it occurs, you'll let nature take its course. If we used this strategy when dealing with the snow risk event, for example, we would leave all the existing arrangements in place, we wouldn't investigate alternative locations for the event, and we would do nothing if snow occurred on the evening of the event.

Avoiding

Risk avoidance involves taking steps to avoid the impact of the risk event or eliminating the cause of the risk altogether. This is different than the acceptance strategy because plans are developed to avoid the risk or its impact whereas the acceptance strategy does nothing.

Back to the snow example. The avoidance strategy for this risk event would be moving the employee meeting to a location in town so that the effects of bad weather are eliminated. Since it doesn't snow in the month of November in the city, the impact of the snow event is eliminated. This assures that all the employees will be able to attend the meeting.

Transferring

Risk transference doesn't eliminate the risk or its impacts—it transfers the responsibility for the management of the risk event to a third party. The classic example of risk transference is insurance. Your own car insurance policy is a perfect example. The insurance company takes on the risk of paying for damages caused by an accident in exchange for money. Keep this in mind because risk transference almost always involves the exchange of money. You'll want to account for transference costs in the project estimates and the project budget.

Contracting is another form of risk transference. The vendor takes on the responsibility for the work as outlined in the contract and accepts the responsibility for the cost of failure. They're going to charge you for the work they perform and will build in a margin for the amount of risk they think they're taking on. Obviously this impacts the project budget, so you'll want to take contract costs into consideration when determining project estimates.

Warning:Watch out when using contracting as a risk strategy because sometimes you're simply swapping one risk for another.

Keep in mind that contracting as a risk strategy doesn't always mean that you won't experience the impact of the risk. One way to transfer the impact of the snow risk event is to contract with a shuttle service to transport employees from the office to the meeting location should it snow. However, if all the drivers go on strike the morning of your event, the four-wheel-drive vehicles won't show up at the designated time to take everyone to the meeting. You've simply traded one risk for another. Closely weigh your options in cases like this to determine which risk your organization is more likely to accept. And, make certain the party you're transferring the risk to is able to assume the risk.

Mitigating

The last technique involves risk mitigation. This strategy attempts to reduce the impact of the risk event by reducing the probability of the risk occurrence or reducing the impact of the risk event to an acceptable level. If it's important to hold your employee meeting at the resort location and changing locations isn't an option, you could consider moving the meeting to a later date when there is no chance of snow in the resort area to mitigate the impact of the risk. You could also reduce the impact of the risk by requiring all employees to be at the meeting location two hours prior to the start of the meeting, which gives everyone time to deal with bad weather conditions should they occur and still get the meeting started on time.


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