20 What risk response strategies are available?

Summary

In this video, a risk management expert discusses strategies for addressing both threats and opportunities in project management. He outlines key approaches such as risk avoidance, transfer, reduction, and acceptance for threats, as well as exploitation, sharing, enhancement, and acceptance for opportunities. The expert also introduces a new concept of 'escalation,' where risks or opportunities not aligned with your objectives are passed to others. This evolution in risk response strategies provides a structured framework for dealing with uncertainty and making more informed decisions in dynamic environments.

Takeaways

• 😀 Risk management strategies evolved over time, starting with basic identification and analysis in the 1980s.
• 😀 In the 1990s, a more structured approach to risk response emerged, focusing on efficiency and strategic thinking.
• 😀 Four main strategies for managing threats (negative risks) were developed: Avoidance, Transfer, Reduction, and Acceptance.
• 😀 The strategies for opportunities (positive risks) were introduced in the 2000s: Exploit, Share, Enhance, and Accept.
• 😀 Risk Avoidance aims to eliminate the threat entirely, while Risk Exploiting ensures an opportunity happens with full certainty.
• 😀 Risk Transfer involves delegating the management of risk to another party, often for a fee, with an equivalent strategy for opportunities called 'Share'.
• 😀 Risk Reduction decreases the likelihood or impact of a threat, while Opportunity Enhancement increases the likelihood and impact of an opportunity.
• 😀 If a risk cannot be actively managed, it is accepted with a contingency plan for threats, and similarly monitored for opportunities.
• 😀 A new strategy called 'Escalation' was added to handle risks that do not directly affect your objectives but may affect others.
• 😀 The framework now includes five strategies for both threats and opportunities: Avoid, Transfer, Reduce, Accept, and Escalate for threats, and Exploit, Share, Enhance, Accept, and Escalate for opportunities.

Q & A

What was the primary focus of risk management in the early days (1984 and before)?

In the early days of risk management, the focus was primarily on identification and analysis of risks. The approach was to respond to each risk as it appeared, with little strategic structure.

What was the significant shift in thinking that occurred around 1997 in risk management strategies?

Around 1997, there was a shift towards introducing more structured and efficient thinking in risk response. The idea was to design a set of strategies that could be chosen and then developed into actionable steps, rather than responding to risks individually.

Can you describe the four original types of risk response strategies developed for threats?

The four original risk response strategies for threats were: 1) Avoidance (eliminating the threat altogether), 2) Transfer (shifting the risk management to someone else), 3) Reduction (reducing the size or probability of the risk), and 4) Acceptance (acknowledging the risk and having a contingency plan in place).

How did the development of opportunity response strategies parallel the strategies for threats?

Opportunity response strategies mirrored the strategies for threats, but with a positive focus. For example, threat avoidance (eliminating a risk) equates to opportunity exploiting (actively ensuring an opportunity happens). Similarly, threat transfer corresponds to opportunity sharing, and threat reduction corresponds to opportunity enhancement.

What role does 'escalation' play in risk management strategies, and how does it differ from 'transfer'?

Risk escalation refers to passing on a risk to someone else because it doesn't affect your objectives. It differs from 'transfer' because escalation specifically involves notifying someone else who is directly impacted, rather than managing or shifting responsibility for the risk to them.

Why did the term 'escalation' become necessary in risk management?

The term 'escalation' became necessary to differentiate the process of passing on a risk that doesn't concern your own objectives. This clarified the action of forwarding the risk to someone who is impacted, without confusing it with the existing concept of 'transfer'.

What is the most recent addition to the risk response strategies?

The most recent addition to risk response strategies is 'escalation'. This strategy addresses the situation where a risk doesn't belong to your area of responsibility and needs to be passed on to someone else who is affected by it.

What are the four matching strategies for opportunities introduced around 2000?

The four opportunity strategies introduced around 2000 were: 1) Exploit (making the opportunity happen with certainty), 2) Share (collaborating with others to bring the opportunity to fruition), 3) Enhance (increasing the likelihood and potential of the opportunity), and 4) Accept (monitoring the opportunity without proactive action).

How do the strategies for threats and opportunities compare in terms of approach?

For threats, the strategies focus on reducing negative impacts (Avoid, Transfer, Reduce, Accept). For opportunities, the strategies aim to maximize positive outcomes (Exploit, Share, Enhance, Accept). Both sets of strategies use a similar structure but are geared toward addressing either negative or positive risks.

What was the role of strategic thinking in improving the efficiency of risk management?

Strategic thinking helped to create a more structured approach to risk management. By having predefined strategies to respond to risks, risk management became more efficient, moving beyond ad-hoc reactions to risks and towards proactive, planned responses.