Risk can be best defined as a threat. Any business risk hurts the project objectives. Simultaneously, it can get looked at as an opportunity. This refers to risks that have a good effect on the project objectives. Hence, it is necessary to develop strategies to counter the same.
Different companies have their own approaches to managing risks. Based on the business risk that a company is witnessing, strategies to manage negative and positive risks should get implemented in project management. Eric Dalius puts forward a series of positive and negative risk management strategies that companies can implement depending on their situation.
The negative risk management strategies
If your company identifies risk as unfavorable, here are a few strategies to implement:
Avert
When you avoid a risk, it also removes the cause. It might result in not doing an activity or delaying the same. A project manager can even isolate or change the focus based on the trouble at hand. There are a few risks that need to get averted by collecting data early. You can also do this by enhancing the communication between the stakeholders or resorting to third-party expertise. For instance, you can extend the schedule or alter the scope of any project activity. Another example could be any hazardous risk that might result in life loss, so it should get averted by shutting down the project.
Transfer
Eric J Dalius says that when you opt-in for the risk transfer approach, the risk gets shifted to another party. Usually, it’s a third party, such as a vendor or an insurance company. This third party gets paid for managing and accepting the risk on behalf of the company. As a result, the risk’s impact and ownership get borne by the third party. Also, the payment is known as the risk payment. The contracts get signed for transferring the risk liability to the third party.
The risk transfer does not reduce the risk altogether, but it can minimize the direct influence of the stake in the project. There are a few transference tools, such as guarantees, insurance policy, warranties, and performance bonds. The approach is highly effective in covering the financial risk exposure.
Alleviate
The process of alleviation minimizes the potential of risk occurrence. It also reduces the risk’s impact within acceptable limits. This approach gets based on the basic principle that if you take action earlier, it helps minimize the chance of risk occurrence and is more effective than fixing a risk after the damage has taken place.
Instances of lessening a risk comprise of making use of new-age or best practices to generate defect-free products. The process of alleviation might need prototype development for assessing the risk level. And where it is not possible to minimize the probability of risk, you can reduce the risk’s impact by recognizing the linkages that decide the risk’s severity.
Accept
This process is all about accepting the risk. It gets mostly done when there is no other apt strategy available for removing the threat. And it can be both active and passive acceptance. Passive acceptance needs nothing other than risk documentation and allowing the team to manage the risk as and when it takes place. In case of active acceptance, you need to design a contingency reserve for recovering the losses you incurred in resources, money, and time.
The positive risk management strategies
When your business identifies risk as positive, you can implement the following strategies.
Exploit or explore
When you explore or exploit a situation, it maximizes the scopes for positive risks. And soon, you can come across an opportunity while trying to address and resolve the danger. During this phase, most project managers assign sufficient and adequate resources to leverage the risk’s opportunity. Furthermore, this approach minimizes the uncertainty linked to the positive risk by making sure that it takes place.
Share
There are times when a business organization’s project team isn’t completely capable of leveraging the opportunity that arises out of a risk or crisis. During such a situation, EJ Dalius says it is necessary to call another organization and partner with it. The skill and expertise of this new company can get leveraged to address the opportunity at hand. Instances of sharing options include creating risk-sharing teams, partnerships, joint ventures, and distinctive purpose organizations. Here, all the parties gain according to their initiatives and investments.
Improve
The act of improving or enhancing includes maximizing the occurrence probability of the risk and stretching the impact. It gets done by recognizing and impacting the multiple risk triggers. Improving an opportunity comprises of adding increasing resources to project the activities to complete it fast.
Accept
This is one standard process between both negative and positive business risk management strategy. The process involves taking complete advantage of your company’s positive risk when it takes place instead of proactively pursuing it. It acts like a scope coming and getting accepted without any pre-planning.
The contingent risk response strategies
It is essential to know about the contingent risk strategies as well. This gets executed when specific events take place and under predefined conditions. Here, the project management team waits for ample warning signals before they implement the strategies. And all the alerts can miss deadlines or milestone work items. Generally, the method comprises of staffing reallocations, executing workloads to reduce the loss, financial reserves, preventing a recurrence, and repairing the damage as much as possible.
Every organization comes across risk at some point in time in its development journey. Some risks can get predicted, while others occur without any notice. Every company must have a risk management strategy ready to respond to the threat or crisis at hand with productive action. It is necessary for the plan to either recover the loss or turn the problem into an opportunity. The strategies mentioned above will help you do that effortlessly, so you can implement that in your business without any worries.
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