Don’t avoid the avoid risk response!

From the Easy in theory, difficult in practice Blog
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Categories: Project Management, Risk Management


Anyone that has taken a course in risk management knows that there are multiple strategies available to respond to identified negative risks including avoidance, transferral, escalation, acceptance and mitigation. 

One would assume that risk owners would select the right response for a given risk, but most of the risk registers I’ve ever reviewed usually reflect only two responses – accept and mitigate.

For low severity risks which are usually characterized as having either a very low probability of occurrence as well as a low to medium impact if realized, the effort required to eliminate them may cost more than the benefits of doing so hence acceptance might be the best response. For risks which lend themselves to mitigation and whose severity is significant enough that it merits the effort, developing and executing an active response, that might be the best strategy.

But when was the last time you actually saw a project team propose and execute an avoid or transfer response strategy?

There are a couple of common ways in which an avoid response could be used – one is to reduce or modify scope which in extreme cases could even imply electing not to proceed with a given project.

For example, if a highway is to be built spanning multiple cities in a developing country, yet I know that the region between two of the cities is plagued by insurgent activity, I might propose that the project’s scope be reduced to skip connecting those two cities until order is restored to avoid incurring any labour-related safety concerns. 

It is also possible to avoid a risk by changing one’s approach to delivering scope – in the highway construction example, while the straight path between two cities might be the shortest, if that would result in the destruction or disturbance of some ancient ruins, significant stakeholder risks could be avoided by taking a longer route.

With a transfer strategy, the objective is to shift the risk to a third-party.  While the common method of doing this is to purchase insurance, outsourcing a subset of your project’s scope to a subcontractor who assumes full risk of quality or schedule issues is also an option.

One of the key benefits of both the avoid or transfer response strategies is that they can completely eliminate specific risks which is an ideal outcome in those cases where risk severity is extreme.  However, the efficacy of these strategies tends to diminish over the lifetime of a project – during initiation and planning, they can be quite effective, but once scope and approach are nailed down, it can be a much costlier proposition to avoid or transfer risks. 

As with all risk management activities, neither of these responses is free so it is important to balance the cost of avoidance or transfer against the expected financial and non-financial (e.g. reputational) impacts of risk realization before making response recommendations.

As Mr. Miyagi said in the Karate Kid Part 2: “Best way to avoid punch, no be there!

(Note: this article was originally written and published by me in December 2013 on my personal blog, kbondale.wordpress.com)

Posted on: February 09, 2018 07:14 AM | Permalink

Comments (9)

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I think transfer is used quite a bit in the make or buy decisions of many projects, but yes mitigate and accept are easy go-tos. They are too easy to accept the accepts ;-) Thanks for this article Kiron.

Thanks Sante!

Good article, Kiron and thanks for sharing.
I think the most important thing is to put together an action plan, then if the risk does happen, we have the Plan B already sorted out (whether it is to avoid or transfer), and we can navigate through the problem easily.

Good article.

I think in some context people see avoid risk as a failure when it is really not.

Thanks Anish & Dinah!

Kiron

Thanks Kiron for great article. I would second Dinah that avoidance and transfer of risk is mostly looked at as a failure to manage or lack of ability to manage. Apart from being expensive option (insurance or outsourcing etc), it sometimes dose not eliminate the risk completely and may generate secondary risks (maybe of lesser probability or impact).

Avoid and transfer risk strategy should be the most common. Surprised to hear that mitigate and accept have been so popular. Go figure.

Thanks a lot .. the same way we exploit we should try to avoid.

Thanks Najam, Denise & Kevin! As with all our PM practices, we need to look at risk responses as a choice - we need to weigh the benefits in terms of risk reduction (for threats) against the costs, potential secondary risk implications, and viability of each risk response when developing them.

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