Responding to Negative Risks in Risk Management Strategies

Risk Management Strategies is an integral part of day-to-day life. Though risks usually carry a negative connotation, there are

positive risks as well. This article focuses on negative risks. By definition, negative risks are uncertain events that may have a negative effect on the project objectives should the risk occur. Negative risks are also known as threats.

Note: The risk response strategies mentioned here are recommended by the PMI and are part of the knowledge required to take the PMP exam.

On projects, risks can be identified through various project activities, such as during a SWOT Analysis. Whatever the source, there are four ways to respond to negative risks:

• Avoid
• Mitigate
• Transfer
• Accept

Therefore, your Risk Management strategy should only be made after understanding how to respond to negative risks.

Risks that do not occur can never hurt your project. Therefore, this is the best way to risk management strategies for negative risks. Here is an example of avoiding a risk. Suppose, your team is scheduled to construct a mall in November and you run the negative risk of slow progress during the months of November to January, due to excessive snow fall. In order to avoid the negative risk, you can delay the construction to February.Your risk management strategy is bound to be a success.

Tip: You can use Decision Trees Analysis using Expected Monetary Value (EMV) to understand the consequences of risks and opportunities better.

If you can’t avoid a negative risk, you should take action so that the effects of the negative risk are minimal. This is the most common approach in risk management strategies to dealing with project risks. For example, if you are planning a trekking trip up the mountains, one of the risks that will always exist is “getting lost in the mountains.” To mitigate this, you may purchase a map or hire a guide.

Best Practice: In daily team meetings, your team should collaboratively identify risks and develop risk management mitigation strategies.

Wouldn’t it be cool if you could get someone else to bear the impact of risks for you? I’m sure your thinking “Yes!” However, it does come at a cost. The cost associated with insuring the negative risk. Insurance and contractual agreements are ways to transfer negative risks in risk management strategies.

Some types of risks cannot be transferred. For example, when you have incorrectly created a project network diagram or incorrectly applied the critical path method.

There are some negative risks you just can’t do anything about. For such risks, you’ll accept them. Here is an example of accepting a risk.

Suppose, you have outsourced work to a location that was politically and economically stable; however, in the recent past there has been political turmoil. The impact of this turmoil will inevitably affect your project and there is nothing you can do about it. In this case, you’ll just have to accept it as a negative risk. This doesn’t mean that you are helpless. You have identified the risk and can make the project stakeholders aware.

For both positive and negative risks, Risk Acceptance is the common response strategy. Another commonality between both types of risks is ensuring that risk identification and response are recurring processes. This is one of the golden rules to follow while managing risks and creating more effective risk managment strategies.