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11 - PROJECT RISK MANAGEMENT

11.5.2.1 Strategies for negative risks or threats

Three strategies, which typically deal with threats or risks that may have negative impacts on project objectives
if they occur, are: avoid, transfer, and mitigate. The fourth strategy, accept, can be used for negative risks or threats
as well as positive risks or opportunities. Each of these risk response strategies have varied and unique influence
on the risk condition. These strategies should be chosen to match the risk’s probability and impact on the project’s
overall objectives. Avoidance and mitigation strategies are usually good strategies for critical risks with high impact,
while transference and acceptance are usually good strategies for threats that are less critical and with low overall
impact. The four strategies for dealing with negative risks or threats are further described as follows:

• Avoid. Risk avoidance is a risk response strategy whereby the project team acts to eliminate the threat or
protect the project from its impact. It usually involves changing the project management plan to eliminate
the threat entirely. The project manager may also isolate the project objectives from the risk’s impact or
change the objective that is in jeopardy. Examples of this include extending the schedule, changing the
strategy, or reducing scope. The most radical avoidance strategy is to shut down the project entirely.
Some risks that arise early in the project can be avoided by clarifying requirements, obtaining information,
improving communication, or acquiring expertise.

• transfer. Risk transference is a risk response strategy whereby the project team shifts the impact of
a threat to a third party, together with ownership of the response. Transferring the risk simply gives
another party responsibility for its management—it does not eliminate it. Transferring does not mean
disowning the risk by transferring it to a later project or another person without his or her knowledge or
agreement. Risk transference nearly always involves payment of a risk premium to the party taking on
the risk. Transferring liability for risk is most effective in dealing with financial risk exposure. Transference
tools can be quite diverse and include, but are not limited to, the use of insurance, performance bonds,
warranties, guarantees, etc. Contracts or agreements may be used to transfer liability for specified risks
to another party. For example, when a buyer has capabilities that the seller does not possess, it may be
prudent to transfer some work and its concurrent risk contractually back to the buyer. In many cases, use
of a cost-plus contract may transfer the cost risk to the buyer, while a fixed-price contract may transfer
risk to the seller.

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