Intro to Project Management: Project Risk Management - Risk Responses, Opportunities Exploit Share Enhance Accept

What This Is

Risk responses are actions taken to address identified risks, either to mitigate threats or exploit opportunities. In project management, opportunities are favorable events that can benefit the project. The goal is to maximize the benefits of these opportunities while minimizing their potential negative impacts. For example, consider a software development project where a team identifies an opportunity to partner with a leading tech company to enhance their product. The project manager must decide how to exploit this opportunity, weighing the potential benefits against the potential risks.

Key Terms & Formulas

• Opportunity: A favorable event that can benefit the project.
• Risk Response: An action taken to address an identified risk.
• Exploit: A risk response strategy to maximize the benefits of an opportunity.
• Share: A risk response strategy to share the benefits and risks of an opportunity with others.
• Enhance: A risk response strategy to increase the potential benefits of an opportunity.
• Accept: A risk response strategy to accept the benefits and risks of an opportunity.
• Risk Matrix: A tool used to categorize and prioritize risks based on their likelihood and impact.
• Expected Monetary Value (EMV): The expected value of a risk, calculated as the product of the probability and impact of the risk.
• EMV = (Probability × Impact) (Expected Monetary Value = probability times impact)
• Return on Investment (ROI): The ratio of the benefits to the costs of an opportunity.
• ROI = Benefits ÷ Costs (Return on Investment = benefits divided by costs)

Step-by-Step / Process Flow

1. Identify opportunities: Recognize potential opportunities that can benefit the project.
2. Qualify opportunities: Assess the likelihood and potential impact of each opportunity.
3. Develop risk responses: Create a plan to exploit, share, enhance, or accept each opportunity.
4. Implement risk responses: Put the risk response plan into action.
5. Monitor and control: Continuously monitor the progress of the risk responses and make adjustments as needed.

Common Mistakes

• Mistake: Failing to consider the potential risks associated with an opportunity.
• Correction: Always assess the likelihood and potential impact of an opportunity before deciding how to respond.
• Mistake: Assuming that an opportunity is automatically a good thing.
• Correction: Weigh the potential benefits against the potential risks and consider alternative responses.
• Mistake: Not communicating the risk response plan to stakeholders.
• Correction: Clearly communicate the risk response plan to all stakeholders and ensure they understand their roles and responsibilities.

Exam Tips

• Be aware of trick words: "Exploit" and "enhance" are often used interchangeably, but "exploit" implies a more aggressive approach to maximizing benefits.
• Understand the difference between risk response strategies: Each strategy has its own strengths and weaknesses, and the project manager must choose the best approach for each opportunity.
• Consider the context: The risk response plan should be tailored to the specific project and its stakeholders.

Quick Practice Questions

1. If a project has a high likelihood of encountering a favorable market trend, which risk response strategy would be most appropriate? Answer: Exploit. Explanation: The project manager should take advantage of the favorable market trend to maximize the benefits.
2. A project team identifies an opportunity to partner with a leading tech company. What is the primary goal of this risk response strategy? Answer: Share. Explanation: The project manager aims to share the benefits and risks of the partnership with the tech company.
3. If a project has a low likelihood of encountering an opportunity, which risk response strategy would be most appropriate? Answer: Accept. Explanation: The project manager should accept the opportunity and its associated risks, as the potential benefits are unlikely to materialize.

Last-Minute Cram Sheet

• Opportunity: A favorable event that can benefit the project.
• Risk Response: An action taken to address an identified risk.
• Exploit implies a more aggressive approach to maximizing benefits.
• Share involves sharing the benefits and risks of an opportunity with others.
• Enhance increases the potential benefits of an opportunity.
• Accept involves accepting the benefits and risks of an opportunity.
• Risk Matrix: A tool used to categorize and prioritize risks.
• EMV = (Probability × Impact) (Expected Monetary Value = probability times impact)
• ROI = Benefits ÷ Costs (Return on Investment = benefits divided by costs)
• Return on Investment (ROI): The ratio of the benefits to the costs of an opportunity.