Risk Response Strategies

Correct Answer: Accept the risk and document it in the risk register

When a risk has escalated to severe status and the cost of managing it exceeds the potential benefits, accepting the risk is the most appropriate strategy. Key reasoning: 1. If risk management costs exceed benefits, additional spending on controls or mitigation would not be cost-effective 2. Documenting in the risk register ensures transparency and communication 3. Risk acceptance is a valid strategy when other options are not economically viable Why other options are inappropriate: - Enhancing controls and monitoring would add more costs to an already cost-inefficient situation - Creating contingency plans and allocating extra resources would further increase costs - Risk transfer through insurance would likely involve high premiums given the severe status, adding more costs when the cost-benefit ratio is already unfavorable By accepting and documenting the risk, the organization acknowledges the situation while maintaining cost-effectiveness and transparency in risk management.

Correct Answer: Establish a reserve

In a situation where a critical supplier has a monopoly and no viable alternatives exist, the best strategy to address the risk of a late delivery is to establish a reserve, often referred to as a contingency plan or reserve. This reserve could consist of additional time, budget, or other resources allocated to mitigate the impact in case the risk materializes. Having a reserve allows the project manager flexibility in managing the schedule and costs if the supplier fails to deliver the components on time. Other options such as adopting a sharing strategy or pursuing vendor lock-in reduction are not directly applicable because they don't mitigate the risk of the supplier's failure to deliver on time, especially when no alternatives are viable. Engaging in multi-sourcing is not an option as stated in the problem because the supplier has a monopoly. Therefore, while these strategies might be appropriate in different circumstances, they are not applicable solutions to the problem presented.

Correct Answer: Acceptance

The best risk response strategy in this scenario is 'Acceptance'. This is because the identified risk is beyond the project team's control, indicating that proactive strategies such as Avoid, Transfer, or Mitigate aren't viable. Acceptance means acknowledging the risk and not taking any action to change the situation, instead preparing to deal with the outcomes as they come. It often involves creating a contingency plan or setting aside a reserve in case the risk occurs. Exploitation by lobbying for favorable regulations is not a risk response strategy recognized by standard project management practices, and it involves a proactive attempt to influence external factors, which can be uncertain and outside the project's influence. Enhancement by increasing marketing efforts deals with the positive side of a risk, which is not appropriate because the risk in question has both a positive and negative side, and thus simply enhancing the positive side does not address the negative potential. Transfer by securing an insurance policy is generally used for financial risks or specific contractually transferable risks, not for broad regulatory changes that affect market acceptance. There might not be an applicable insurance product for such a risk, and even if there were, it would not address the potential for enhancement, only the negative impacts.