Risk Treatment

Risk Treatment

Treatment of the Risk

You must eliminate or contain every danger as soon as possible. So It is important that ‎responses are appropriate to the significance of the risk treatment, cost-effective in meeting the ‎challenge, realistic within the project context, agreed upon by all parties involved, and ‎owned by a responsible person.‎

Certified Financial Risk Management Consultant®

Dealing with Threats

There are four possible strategies for dealing with risks that may have negative impacts ‎on the project regarding the Risk Treatment:‎

1. Avoid

This involves taking action to either reduce the probability of the risk and/or its impact ‎to zero. So In either case, this response enables the risk to be circumvented entirely.

For ‎example, using a certain supplier might carry the risk of them going out of business ‎during the course of the project. So This risk could be avoided by using a supplier who was ‎bigger, better established, and more financially secure.‎

2. Transfer

This involves transferring the risk to a third party so that they are responsible for its ‎management and impact. It does not eliminate the risk it simply transfers the liability to ‎someone else.

This can be done by either taking out insurance (the insurance company is ‎now liable) or having the work done under a fixed-price contract (the contractor is now ‎liable).

Risk transference nearly always involves payment of a risk premium to the party ‎taking on the risk and may introduce new risks.

For example, an insurance company ‎may contest the claim or a contractor might dispute the terms and conditions of the ‎contract if they are having problems delivering.‎

3. Mitigate

Taking early action to reduce the probability and/or impact of a risk occurring is often ‎more effective than trying to repair the damage after it has occurred. So Adopting less ‎complex processes, conducting more tests, or choosing a more stable supplier are ‎examples of mitigation actions.‎

  • Preventative action involves aiming to prevent a high-risk situation ‎ It includes health and safety training, firewall protection on corporate ‎servers, and cross-training your team.‎
  • Corrective action involves identifying the points in a process where something ‎could go wrong, and then putting steps in place to fix the problems promptly if ‎they occur.
  • Detective actions include double-checking finance reports, conducting ‎safety testing before a product is released, or installing sensors to detect product ‎‎

4. Accept

The most common acceptance strategy is to establish a contingency reserve, including ‎amounts of time, money, or resources to handle the risks.

It is usually chosen either ‎because the risk is low in terms of impact or probability, or the cost and effort of taking ‎a different action are out of proportion to the risk itself.‎ Avoiding, transferring, migrating, and ignoring can be effective strategies to deal with ‎risks that lead to negative impacts.‎

Dealing with Opportunities

There are four possible strategies for dealing with risks that may have positive impacts ‎on the project:‎

1. Exploit

Examples of directly exploiting responses include assigning an organization’s most ‎talented resources to the project to reduce the time to completion or to provide lower ‎costs than originally planned.‎

2. Share

Sharing a positive risk involves allocating some or all of the ownership of the ‎opportunity to a third party who is best able to capture the opportunity for the benefit ‎of the project. So Examples of sharing actions include forming risk-sharing: Partnerships, ‎Teams, Special-purpose companies, or Joint ventures (JVs).  These can be established ‎with the express purpose of taking advantage of the opportunity so that all parties gain ‎from their actions.‎

3. Enhance

Examples of enhancing opportunities include adding more resources to an activity to ‎finish early.‎

4. Accept

When you accept an opportunity it is all about wanting to take advantage of it if it comes, but not actively seeking it.

Exploiting, sharing, enhancing, and accepting can be effective strategies to deal with risk ‎and often lead to positive impacts.‎