Negative Risk Response

Quick reference

• 00:04 Hi, I'm Ray Sheen.
• 00:06 Let's talk about how to respond to threats, negative risks on your project.
• 00:10 The project management body of knowledge, the PMBOK Guide, defines the threat
• 00:15 risk as a risk that would have a negative effect on one or more project objectives.
• 00:20 There are five different approaches that you can take, escalate, avoid,
• 00:24 mitigate, transfer, and accept.
• 00:27 Which approach you'd take will depend upon a number of different factors associated
• 00:30 with your project in the business.
• 00:32 For instance, the type of project, project phase, resources, time and
• 00:36 money that are available, even the rational and
• 00:39 management commitment to the project can impact which risk response you choose.
• 00:44 Let's look at each of the five response types in more detail.
• 00:48 The first response strategy is escalate.
• 00:50 Now that doesn't mean that this should be your first response.
• 00:53 Actually, this is the last response if none of the others will control the risk.
• 00:58 This strategy leads to a rebaseline of the project,
• 01:01 often to go down a totally different path which avoids or neutralizes the risk.
• 01:06 The magnitude of this risk is one that is beyond the ability of the project team to
• 01:10 address.
• 01:11 So they bring it back to the stakeholders with a request to change the goal or
• 01:14 boundaries.
• 01:15 The risk is bigger than the team's ability to take an appropriate action on it.
• 01:20 One thing the stakeholders may choose to do is to subtract scope.
• 01:24 Another thing is to change the product schedule boundary,
• 01:26 like moving the project to a different fiscal year.
• 01:29 Or the stakeholders could change the project total budget, adding more money or
• 01:33 moving money between capital funds and expense funds.
• 01:36 Keep in mind that the stakeholders may also say that they need to find
• 01:40 a different project team.
• 01:41 The remaining four strategies are all strategies that the team can apply without
• 01:45 asking permission from the other stakeholders,
• 01:48 because the rest of the techniques do not change the project boundaries.
• 01:52 Let's look at the strategy avoid.
• 01:54 This strategy removes the risk threats so that they can not happen.
• 01:57 This is a preventive action strategy.
• 02:00 The project has changed in such a way that the risk cannot occur.
• 02:03 One way to do this is to change the scope so as to eliminate the task with the risk
• 02:07 in it, or change how the task is accomplished and controlled.
• 02:11 Another way to do this is to change the schedule so
• 02:13 that the tasks happen at a different time when they are not susceptible to the risk.
• 02:19 Or we could change resources by using a different resource pool within the project
• 02:23 team's control, or changing the roles and responsibilities among team members.
• 02:27 One caution when using this approach, the change may eliminate one risk but
• 02:32 there is normally risk associated with the changed approach.
• 02:35 Be sure to add this new risk to your risk analysis.
• 02:39 One other point, some risk just can't be avoided.
• 02:42 So this is not always an option.
• 02:44 The next risk response strategy is mitigate.
• 02:46 Instead of a preventive action plan, we are taking an early corrective action.
• 02:51 Again, we changed the project plan, but
• 02:53 instead of avoiding the threat, we prepare for it.
• 02:56 We make allowance for it within our project plan.
• 02:58 It could still happen but it won't hurt as much.
• 03:01 We often to this by again changing our scope or our deliverables.
• 03:04 In particular, the definition of done to a different standard.
• 03:08 I often mitigate risk by changing the cost or schedule estimates.
• 03:12 I'll build in to my estimate a risk response so I'm ready for
• 03:15 the problem when it occurs.
• 03:17 This can insulate the rest of the project from the problem,
• 03:19 isolating the impact to just that one task.
• 03:23 Another way to mitigate the risk is to create an early warning signal.
• 03:26 The sooner you know that a risk will occur, the sooner you can take action.
• 03:29 And generally, taking an action early in the project will be less expensive and
• 03:33 disruptive than waiting until late in the project.
• 03:37 Finally, you can preposition risk response capacity at the point where a risk could
• 03:41 impact the project.
• 03:43 I often do this by adding a risk mitigation task.
• 03:46 An example of this is adding a task for
• 03:48 software bug fixing in a software development project.
• 03:52 This prepositions time and resources to take care of the risk.
• 03:56 The next response strategy is to transfer the risk.
• 03:59 To transfer risk, use some organisation that is not part of your organisation,
• 04:04 letting them assume some aspect of the risk.
• 04:07 It requires a contract with that other organization, clarifying the liability and
• 04:11 the exposure.
• 04:11 For instance, some risk can be insured for.
• 04:14 Typically, these will be things like natural disasters or
• 04:17 damages of some types.
• 04:18 Insurances does not present the risk but
• 04:20 it provides resources you can recover from the risk.
• 04:24 We can also transfer risk through contract terms with suppliers such as bonds and
• 04:28 guarantees or using service level agreements with suppliers.
• 04:32 Even the contract type can transfer risk.
• 04:34 A fixed price contract transfers the risk of an overrun to the supplier.
• 04:39 You can also transfer schedule and quality risk through penalty and
• 04:42 incentive clauses.
• 04:44 The last strategy to use is the acceptance approach.
• 04:47 If you haven't done one of the other approaches, you are doing acceptance.
• 04:51 With this strategy, there is no immediate action.
• 04:55 The project plan remains unchanged.
• 04:57 Either the threat is so small or it's so uncertain, you accept it for now.
• 05:01 Even though I accept the risk, I'll still create a trigger.
• 05:04 That is some type of warning that this risk has grown in magnitude or
• 05:08 has gone from being very unlikely to become likely.
• 05:11 If this happens, the acceptance strategy is changed to one of the others.
• 05:16 If you have many risks that are in this acceptance category,
• 05:19 you should establish reserves to handle them.
• 05:21 This is a small amount of resource or
• 05:23 time that can be applied to those irritating small risks.
• 05:27 One final point about the accept strategy, by definition accept is not
• 05:31 a good strategy for a red risk, that risk is likely to happen and it's a big deal.
• 05:37 You can't just close your eyes and accept it.
• 05:40 When you have a threat risk in your project,
• 05:42 you need to plan an appropriate response.
• 05:45 Now whether it's escalate, avoid, mitigate, transfer, or accept,
• 05:49 select a response strategy and then implement it.

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