When it comes to managing risks associated with projects, there are some approaches that are more effective for dealing with positive and negative risks. In this blog, we’ll discuss the different risk management strategies in the project management domain.
Negative Risk Management Approach
1. Avoid
Avoidance eradicates the risk by eliminating the cause. It may lead to not performing the activity or uniquely performing the same. The project professional may also modify or isolate the goal that faces an obstacle. Some risks can be eliminated by early data collection, enhancing communication between stakeholders, or leveraging expertise. This risk management strategy includes extending the scheduling or modifying the project activity scope. Another instance could be a dangerous risk that may lead to life loss and is eliminated by shutting down the project altogether.
2. Transfer
In the Risk Transfer strategy, your risk is transferred to either an insurance firm or a vendor. They accept or tackle the risk on your behalf. This payment is known as a risk premium. Contracts are signed to transfer the risk liability to the third party.
Risk Transfer minimizes the direct effect of the risk on the project. Few types of Transference tools are performance bonds, guarantees, insurance policies, warranties, and more. This technique is most effective in covering financial risk exposure.
3. Mitigate
Mitigation minimizes the probability of risk occurrence or reduces the possible effects with acceptable limits. This technique is based on the basic principle that earlier, the action taken to minimize the risk effect is more effective than repairing the damages after the risk occurs.
An example of mitigating a risk includes leveraging innovative technology or top techniques to offer more error-free products. A model is often developed in order to estimate the risk level. If that's not possible, mitigating the effects of risk is focused on determining the connections that identify the risk depth.
4. Accept
Acceptance is a strategy that means accepting risks when no other acceptable method is available to eradicate the risk. There are two types of acceptance: active and passive. In the case of active, a contingency reserve is built to recover any losses from resources, time, or money. Passive acceptance needs no action or decision-making.
Positive Risk Management Approach
1. Exploit
Exploitation increases the chances of creating a positive risk, resulting in an opportunity. As a project professional, you're allocated sufficient and efficient resources to take advantage of this chance. This strategy minimizes the uncertainty linked with a positive risk by ensuring that it occurs.
2. Share
High-impact opportunities that are found by the project team themselves might not be able to yield as much revenue as the team would like. In some cases, they may need to call in another organization and this helps increase the chance of revenue. For example, forming risk-sharing alliances, teams, different purpose organizations, or joint businesses.
3. Enhance
Enhancing involves increasing the probability of risk occurrence and expanding its effect. This is done by determining and influencing different risk triggers. An example of improving an opportunity is adding more resources to project activities.
4. Accept
Acceptance involves taking advantage of the positive risk; not actively achieving it. This is similar to an opportunity coming and being accepted without any pre-planning. Contingent Risk Response Approach
These approaches happen under a specific event and the execution of these approaches takes place under a particular predefined condition.
The team can anticipate and execute contingency plans when needed. For example, a team member might notice that their goals are not being met or their timelines might be off. These methods include staff reallocation and implementing work rights to reduce the loss and financial reserves.