Risk Response Strategy as a Solution to Different Levels of Risks

Risk response is the process of determining which actions to undertake to reduce the likelihood of a risk occurrence which happens to be a threat in achieving organizational strategic plans. It involves coming up with strategic options to increase opportunities and reduce threats. There are four types of risk response which are mitigating, transference, avoidance or acceptance .Transfer response applies when there is a low probability of occurrence but there is a high financial impact. Mitigation response is when there is a high likelihood of occurrence, but the economic impact is little. Acceptance response is applied when the cost to mitigate the response is greater than the cost to bear the risk. Avoidance response applies when one wants to shut trouble before it happens. An organization chooses which risk response to use based on the cost in terms of time and effort to change to a different risk response.

The vendor I hired is not performing. The best risk response is mitigation. I will have to train the vendor to equip him with skills and expertise for better performance. The training has low financial cost but will yield high in return. The contingency plan is to give the vendor morale and motivation in his job. The equipment ordered is one month late. The best response strategy is to transfer risk. Transference is through entering into contracts to shift the burden of paying up warehouse and transportation cost to the supplier. The contingency plan is to pay up for the equipment upon delivery.

Location where the project is being developed has hurricanes. The best risk response is avoidance. The occurrence of hurricanes in the area few times in a year will lead to an enormous financial loss to the organization if the project is located there. Avoidance will help the organization to save its resources from destructions when hurricanes occur. The contingency plan is to look for a new safe location to set up the project.

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Task effort is going to take three times long-The best risk response is mitigation because it will limit the financial impact of the task effort taking longer time. Outsourcing a consultant will equip the workforce with new skills and expertise of achieving their objectives within the stipulated period. The contingency plan is enforcing accountability and making follow up on the progress. In conclusion, one needs to select a risk response strategy that suits the level of risk that one is prepared to undertake. Risk response is done by putting together action plans to help one work through to identify risk response that will work best in different scenarios.

References

1. Apgar, D. (2006). Risk Intelligence. Harvard Business Review Press.
2. Michel Crouhy, R. m. (2000). The essentials of risk management. McGraw Hill Education
3. Vose, D. (2000). Risk analysis. John Wiley & Sons.

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