Lessons · Project management · risk responses: avoid, mitigate, transfer, accept

Four things you can do about a threat

A threat can be avoided (change the plan so it cannot happen), mitigated (make it less likely or less painful), transferred (make it someone else's, usually for a fee), or accepted (do nothing now, hold reserve).

Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.

What it is for

We should insure the equipment, we should hire a second vendor, and we should just carry the risk are three different responses with three different prices. Naming which one you are proposing is how the sponsor can compare them.

How to think about it

For each top risk, cost each response and compare it with the EMV. A mitigation that costs more than the EMV it removes is not worth doing. Accepting is a decision, written down, with a reserve behind it, not the absence of one.

Worked example

Risk: 40% chance of a $100,000 rework. EMV = −$40,000

The size of the problem.

Avoid: use the proven model instead. Costs $20,000 more, risk gone

Removes $40,000 of EMV for $20,000. Worth it.

Mitigate: a prototype for $15,000 cuts the probability to 10%. New EMV −$10,000

Removes $30,000 of EMV for $15,000. Also worth it, and keeps the new model.

Transfer: a fixed-price contract for $12,000 more, so the vendor carries the rework

The risk still exists; the bill is theirs.

Accept: hold $40,000 in contingency and watch

Right for small risks, written down as a choice.

Your turn

Write the response that hands the risk to someone else for a fee.

: an insurance policy or a fixed-price contract

The trap

Confusing transfer with avoidance. Insurance pays after the fire; it does not stop the fire. Only avoidance removes the event.

Practise risk responses: avoid, mitigate, transfer, accept on HoneA question on it now, a coding challenge where there is one, and it is remembered for review. Free, no email needed.