45 min.
A11.KCI-4. Select and implement response
1. In risk management, we categorize risks as either having negative impacts on projects or programs, or as opportunities with positive outcomes. These responses are classified as either risk-limiting or opportunity-enhancing.
2. RISK LIMITING RESPONSES
There are many ways to mitigate risk:
3. These categories aid in formulating responses to manage risks effectively.
4. Avoid: Exclude (or avoid) the risk, often by abstaining from associated activities. However, this can introduce new risks. For instance, a patient opting out of a heart operation to avoid the risk of complications may face an increased risk of a heart attack.
5. Remove the source: It's more effective to modify activities to mitigate risks. For instance, if there's a risk of strikes by lorry drivers when transporting a part between cities, consider using air transport or adjusting the schedule to delay the need for the part.
6. Change the likelihood: Mitigation responses are actions taken by organizations to decrease the probability or impact of risks. For example, if there's a risk of missing a deadline, which could be costly, implementing strict progress monitoring can mitigate this risk. However, it's essential to weigh the cost of these responses against the potential consequences of the risk. Spending €100,000 on progress monitoring is justified only if the potential consequences far outweigh this expense.
7. Change the consequences: Implement preventive measures to mitigate consequences. For instance, using fire-resistant materials confines a fire to a specific area. Similarly, avoiding the travel of key team members together minimizes potential fallout from accidents.
8. Share: Sharing impact involves agreements where parties agree to share risks or opportunities. For instance, incentive contracts allow both the customer and supplier to share cost reductions, or a supplier may receive a bonus for early delivery. Transferring risk involves passing consequences to another party, such as through insurance. In some Islamic countries, insurance practices differ. Fixed-price contracts also transfer price risk to the supplier, typically placing it with the party able to control it.
9.Contingency: This strategy involves pre-approved reserves, like extra budget or time tolerance, which are used when needed without impacting initial planning. Similarly, creating a disaster plan in advance helps mitigate damage by outlining immediate actions in case of emergencies. Regular drills ensure preparedness and safety for all involved parties.
10. Accept: Passive acceptance doesn't allocate a separate budget for risks, while active acceptance does by setting aside funds for potential issues.
11. OPPORTUNITY ENHANCING RESPONSES
12. The following responses are for opportunities:
Exploit: Rather than avoiding risk, exploit it by embracing uncertain events for potential gain. For instance, offering extra payment to suppliers who find cost-saving methods or collaborating on risky projects with partners.
Share: A contract where you pay the supplier extra for cost savings exemplifies sharing opportunities found during the project. Accepting a risky project jointly with another party is another example.
Increase: Increase responses by seizing opportunities. For instance, working overtime to deliver early and gain market advantage.
What's your take on extending the design process by a month to incorporate a unique feature, setting the product apart from competitors?
Ignore: Choosing to let opportunities pass without action.
13. CARRYING OUT RISK MANAGEMENT
Now, integrate the various responses into the plan. These actions are integral to the management cycle you must execute.
14. Avoiding the risk will likely lead to a change in scope. To mitigate it, we can enhance execution control or integrate disaster plans as sub-plans. Transferring the risk might involve a "make or buy decision" or obtaining insurance. Accepting the risk may mean allocating extra budget (active acceptance) or incorporating it as an assumption in the planning conditions (passive acceptance).
15. It's crucial to distinguish between the risk owner, who oversees risk tracking and monitoring, and the action holder, responsible for executing planned responses. While the owner may also be the actioner, delegation is possible.
16. Even after implementing all responses, managing residual risk remains essential. If risk owners or actioners fail, it's the project/program manager's responsibility to ensure a solution. Beyond agreed plans, close monitoring of the risk profile is crucial.
To validate the application of this key competence indicator, Select and Implement Response in the IPMA certification, individuals in project management have to:
