Four Ways in Which You Can Respond to Risk

So is finding and identifying risk enough? No, not really. After you have found and identified risk, your job is not yet over. You will have to determine how you are going to handle the potential risk. There are four ways in which you can respond to risk: avoidance, transference, mitigation, and acceptance:

• Avoiding a risk can be accomplished by taking steps to change your plans, go with different technologies, or hire employees that are skilled in dealing with the problems you are facing. Consider the example of your daughter's wedding. She has made up her mind that it should be this summer on the beach in the Bahamas. You have explained to her that there is always the chance that a hurricane could occur on that same week as the wedding. To avoid the risk, you have suggested that it be moved to Hawaii.
• Transferring a risk is another valid approach. To transfer the risk, you will move ownership to a third party. Insurance is one way to transfer risk. They assume the risk, but we are saddled with the cost of the insurance. In our example of the wedding, we could transfer the risk by buying hurricane insurance.
• Mitigating a risk is the third possible approach. Mitigation is an active attempt to reduce the effect of the risk even before it happens. For a software project this might mean spending more time in development, adding security features, or incurring the cost of a longer, more thorough, beta test. For the future bride, a potential mitigation strategy might consist of securing tents on the beach to protect the attendees from sun or rain and possibly moving the reception inside the hotel to a more sheltered area.
• Accepting the risk is the final option and only when no other options are available or the potential loss is small when compared to the project's benefits. If this is the chosen path, it is important to prepare contingency plans to make sure you will be able to deal with the risk if it occurs. To use the wedding analogy one final time, we can see that if the bride has her heart set on this wedding on the beach, it may be best just to go along. Although what she doesn't know is that the hotel has agreed to allow them to hold the event indoors should the weather turn bad. Knowing that there's a contingency plan eases the worries.