Responding to risk
The one possible response when you respond is to ensure that you have a plan in case of major risk. This would mean developing a response plan before the risk has occurred.
Then the response plan can simply be executed should the event occur. Planning ahead allows you to carefully analyse the options available and determine the best course of action, so you aren't forced to make a quick decision when presented with a threatening situation
Possible responses include avoiding the risk, transferring the risk, mitigating the risk, or even accepting the risk.
Risk avoidance: Here you concentrate on eliminating the cause of the risk. For example you may choose to give work to an experienced contractor who you have used before, rather than hand a new contractor who you have no experience of.
This is known as removing risk from the project. Sometimes this is only possible if the project is not done at all!
Risk reduction: This means reducing the impact of risk. Field and Keller highlight some common risks: lack of experienced staff, contractors reputation is poor, project manager has no prior experience of working with the assigned contractor.
Risk transfer: A way of transferring risk is to subcontract the work to specialist subcontractor. For the risk transfer to work successfully the subcontractor should have specialist skills in the area of work. The subcontractor needs to be reliable (in practice it also helps if you have worked with this subcontractor before, and thus have confidence in him) with appropriate experienced resources.
In transferring risk to a contractor there is usually a trade-off. For example, you can accept a higher price from a contractor, perhaps for a specific activity, in return for a fixed priced contract. Here the contractor assumes most of the risk.
Another means of transferring the risk is by insurance. Simply insuring against fire or theft provides financial cover for any losses incurred.
Risk accpetance: Accepting risk when there is the likelihood of a low risk event and when the potential impact on the project is low. A satisfactory response may be to accept the risk.
In this strategy, the project manager has evaluated risk but decided that it is too costly to do anything at the present time. He may note the various factors that would be risky to the project and plan to re-visit them during the course of the project. The important factor is that the project manager has given some thought to the risk(s) that might happen.
Mitigating risk: Here you can reduce the likelyhood of risk by reducing the risk of the event happening. For example, you can reduce the risk of product failure by using proven technology rather than 'cutting edge' technology.
Excerpts from The University of Sunderland BA (Honours) Business Management, courtesy Resource Development International (RDI) Jamaica.www.rdijamaica.com
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