Happy Valentine’s Day! (or Relationship-oriented Risk Response Strategies)

Happy Valentine’s Day!  Today is a day that most people have relationships in their hearts and minds.  As I recall in the conclusion of my previous post, I hinted at relationship-oriented strategies for responding to identified project risks.  Well, I wasn’t really talking about the relationship risks of today – I hope you remembered to prepare something thoughtful for your special someone!  There may be a lot of risk involved with forgetting!

What I want to highlight in today’s post are two risk response strategies that involve a relationship with another party:

1. Risk Transference – reducing the impact of a threat by moving all or a portion of it from your project to another party
2. Risk Sharing – increasing the probability and/or positive impact of a project opportunity by partnering with another party to mutually benefit

Risk Tranference

Both strategies involve a relationship with a third party, usually via a contract.  In the situation of an identified threat to the project, the uncertainty may be shifted to an outsourcing provider at a fixed price – exchanging an uncertain cost for a known cost.  The risk of increased costs is “transferred” to the outsourcer.  Remember “secondary risks?”  In the case of outsourcing, you may introduce a new “secondary” risk by invoking the risk tranference strategy – what about the risk that the provider does not fulfill his contractual obligation?

Another example of tranferring threat is insurance.  For a known premium cost, you might “transfer” the risk to an insurance company.  Remember “residual risk?”  With an insurance approach to risk tranference, the residual risk may be the deductible that you incur if a threat actually occurs.  In this case, the residual risk is the amount of risk that remains after you have transferred the majority of the threat to your insurance company.

Risk Sharing

The opposite view of a threat is an opportunity.  The relationship-oriented approach to an opportunity involves another party’s participation in increasing the probability that the opportunity will occur or increasing the mutual benefit of the opportunity if it does occur, or a combination of both!

For example, you may want to propose to provide project services to your client, but the Request For Proposal (RFP) includes a statement of work that includes a particular weakness of your organization.  You have a low probability of winning this opportunity.

However, if you partner with another organization with a strength in that particular portion of work, both of your organizations stand a much higher probability of winning the opportunity with your joint proposal.

Similarly, you may be able to increase the benefit of an opportunity by “sharing” it with another group or project.  For example, suppose you need the same materials that another project also needs.  If you “partner” to purchase the materials with a higher quantity order, you may be able to mutually benefit from a cost reduction based on combined volumes.

So – Happy Valentine’s Day!  As you sit for the PMP® Exam, remember to include others in your responce planning for the identified threats and opportunities in your projects!