Risk Management Strategies

Risk Management Strategies
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Manish Sharma

Published on February 22, 2013


  • 727 Views

A risk can be a Threat i.e. a risk with negative impact on project objectives or it may be an Opportunity i.e. a risk which brings positive impact on project objectives, and accordingly there are different strategies to deal with negative and positive risks, when it comes to Project management. 

The strategies to deal with Negative Risk or Threats are:

- 1) Avoid – Avoidance eliminates the risk by eliminating the cause. It may lead to not doing the activity or doing the activity in different way. The project manager may also change or isolate the objective that is in trouble. Some risks can be avoided by early collection of information, by improving communication between stakeholders or by use of expertise.

Example of this approach includes extending the schedule or changing the scope of the project activity. Another example could be a risk which is too hazardous that it may lead to loss of life and is avoided by shutting down the project completely.

2) Transfer – In Risk Transfer approach, risk is shifted to a third party. The third party, like insurance company or vendor, is paid to accept or handle the risk on your behalf and hence the ownership as well as impact of the risk is borne by that third party. This payment is called risk premium. Contracts are signed to transfer the liability of risks to third party.

Risk Transfer does not eliminate the risk but it eliminates the direct impact of the risk on the project. Few Transference tools are insurance policy, performance bonds, warranties, guaranties etc. This approach is most effective in covering financial risk exposure.

3) Mitigate – Mitigation reduces the probability of occurrence of a risk or reduces the impact of the risk within acceptable limits. This approach is based on the fundamental principle that earlier the action taken to reduce the probability or impact of a risk is more effective than doing fixes to repair the damages after the risk occurs.

Example of mitigating a risk includes use of advance technology or best practices to produce more defect free products. Mitigation may require a prototype development to measure the risk level. In case where it is not possible to reduce the probability of the risk, the risk impact reduction is targeted by identifying the linkages that determine the risk severity.

4) Accept – Acceptance means accepting the risk, especially when no other suitable strategy is available to eliminate the risk. Acceptance can be passive acceptance or active acceptance.

Passive acceptance requires no other action except to document the risk and leaving the team to deal with the risks as they occur. In an active acceptance approach, a contingency reserve is designed to recover the losses of time, money or resources.

The strategies to deal with Positive Risk or Opportunity are:

1) Exploit – Exploitation increases the chances of making a positive risk happen, leading to an opportunity. As a project manager you assigned sufficient and efficient resources to take advantage of this opportunity. This approach reduces the uncertainty associated with a positive risk by ensuring that it definitely happens.

2) Share – When the project team themselves are not fully capable of taking advantage of the opportunity they might call in another company to partner with. The expertise of another company is leverage to maximize the return out of the opportunity. Examples of sharing opportunity include forming risk-sharing partnerships, teams, special purpose companies, or joint ventures. In this all parties gains as per their investment and action.

3) Enhance Enhancing involves increasing the probability of occurrence of the risk and expanding its impact. This is done by identifying and influencing the various risk triggers. Example of enhancing an opportunity includes adding more resources to project activities to finish it earlier.

4) Accept – This involves taking the advantage of the positive risk as it happens but not actively pursuing it.  It is just like opportunity coming and being accepted without much pre-planning.

Contingent Risk Response Strategies
These strategies are implied only when certain events occur. The execution of these strategies happens only under certain predefined conditions. The team waits for sufficient warning signals before implementing these strategies. These signals could be missing the milestones work items or deadlines etc.

These strategies includes using Financial reserves, Staffing reallocations and implementing Workarounds to minimize the loss, repair the damage to the extent possible and prevent recurrence.

References:-
Achieve PMP Exam Success, Margaret Chu, Diane Altwies, Edward Walker, JRoss Publishing, 3rd Edition Head First PMP, Jennifer Greene and Andrew Stellman, O’Reilly, 2nd Edition

About the Author

Manish is a PMP certified professional with more than 7 years of IT industry experience in various technical and cross functional roles. He holds an M.B.A (International Business and Finance) and B.E. (Hon's in Electronics and Communication Engineering) degrees.


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