What type of risk response is this?

Wendy has identified a risk event in her project that has an impact of $75,000 and a 60 percent chance of happening. Through research, her project team learns that the risk impact can actually be reduced to just $15,000 with only a ten percent chance of occurring. The proposed solution will cost $25,000. Wendy agrees to the $25,000 solution.

What type of risk response is this?
A . Mitigation
B . Avoidance
C . Transference
D . Enhancing

View Answer

Answer: A

Explanation:

Risk mitigation implies a reduction in the probability and/or impact of an adverse risk event to be within acceptable threshold limits. Taking early actions to reduce the probability and/or impact of a risk occurring on the project is often more effective than trying to repair the damage after the risk has occurred.

Incorrect Answers:

B: Avoidance changes the project plan to avoid the risk altogether.

C: Transference requires shifting some or all of the negative impacts of a threat, along with the ownership of the response, to a third party. Transferring the risk simply gives another party the responsibility for its management-it does not eliminate it.

Transferring the liability for a risk is most effective in dealing with financial risk exposure. Risk transference nearly always involves payment of a risk premium to the party taking on the risk.

D: Enhancing is actually a positive risk response. This strategy is used to increase the probability and/or the positive impact of an opportunity. Identifying and maximizing the key drivers of these positive-impact risks may increase the probability of their occurrence.