Negative Risk Response Strategies in Project Management

Today, I will discuss negative risk response strategies.

A risk is an unplanned event that may or may not occur. If it does, it can impact your project objectives, such as scope, cost, quality, or schedule. The impact can be positive or negative.

A positive risk has a positive effect, while the impact of a negative risk is negative. Your aim should be to increase the chances of positive risks while avoiding negative risks. If avoidance is not possible, you will try to reduce the impact or the probability of negative risks. 

You will identify these risks and develop a management strategy during the planning phase.

Strategies to manage negative and positive risks are different. We will discuss negative risk response strategies. I have discussed positive risk response strategies in another post.

Negative Risk Response Strategies

According to the PMBOK Guide, we have five strategies to manage negative risks in project management:

• Escalate
• Mitigate
• Transfer
• Avoid
• Accept

Ideally, you want to avoid risks, but this is often not possible.

Escalate

You use the escalate risk response strategy when you cannot manage risk because you lack authority, resources, or knowledge. 

You contact your PMO or management to take responsibility for the risk. Once the higher authority accepts, you won’t take further action other than updating the risk register. 

For example, say your local government announces a regulation that could negatively impact your project. Since you have no resources to manage this risk, you approach management.

You can use this risk response strategy for positive and negative risks.

Mitigate

This risk response strategy helps lessen the impact or probability of the risk and decrease its severity. 

For example, a team member may leave during the peak of your project. To reduce the impact of their absence, you find another employee with similar qualifications in your organization. 

The new employee may not be as capable, but he can cover. This is a purely negative risk response strategy.

Transfer

You use this strategy when you lack the skills or resources to manage the risk or are too busy. 

You simply transfer the responsibility to a third party. If the risk occurs, the third party will manage it, and you will be safe from the impact. Note that transferring does not eliminate the risk; it only shifts the responsibility. 

For example, you have to install equipment but lack experience. The task is complex, and very few contractors have done it successfully. You find an expert and hire them to do the task for you, signing a fixed-price contract. 

In this way, you have transferred the risk responsibility to a third party, and now they will complete the task at the agreed time and cost. 

Transferring risk can cause a secondary risk. For example, although you have given it to a third party, you are responsible for the project from the client’s point of view.

This is, again, a purely negative risk response strategy.

Avoid

Here, you try to eliminate the risk or its impact by changing your project management plan, scope, or schedule. 

This strategy is used with critical risks. It is the most effective technique, so use it when you can. Identifying the risk at an early stage makes it easier, as changing the scope or plan at a later stage is difficult and costly. 

You will have to convince the client or your management to change the scope or schedule to use this strategy. Avoid risk response strategies require their approval. 

For example, you find that there is a chance of rain during certain periods, and you have work planned outdoors at that time. Therefore, you move these activities to a few days later to avoid the risk.

This is a negative risk response strategy.

Accept

You can use this risk response strategy with positive and negative risks. Here, you take no action to manage the risk other than acknowledge it. 

You use this strategy with non-critical risks when it is not possible or practical to respond using other strategies or if it is of little importance and does not call for a response. 

You can accept the risk either by actively or passively acknowledging it. In an active acceptance strategy, you keep a separate contingency reserve to manage the risk, and in passive acceptance, you do nothing except record it in the risk register. 

For example, you are digging for a building foundation, and there is a risk of finding artifacts, though the chances are low. So, you record this in the risk register and take no action because a response plan is costly, with no guarantee that the risk will occur.

This risk response strategy can be used with negative and positive risks.

Summary

Negative risks affect your project objective negatively. As a project manager, you will try to minimize the impact. You have five negative risk response strategies to manage negative risks. Every strategy has importance, and you will select the most suitable for the situation and risk. Out of these five strategies, escalate is the only strategy where you don’t have any responsibility since management does.

Further Readings:

• What is Risk Management?
• What is a Risk Management Plan?
• What are Risk Response Strategies?
• What are the Negative Risks?
• What are the Positive Risks?
• What are Positive Risk Response Strategies?

This topic is important from a PMP and PMI-RMP exam point of view.