Planning PRINCE2 7 Risk Responses
Planning the PRINCE2 responses to risks is the 3rd step in the PRINCE2 Risk Management procedure of Identify, Assess, Plan, Implement and Communicate. Its primary goal is to plan specific responses to the threats and opportunities:
The objective of planning the responses to risk is to reduce the threats and maximize the opportunities.
If the Project Manager fails to plan responses to a risk, they will be caught off-guard if this risk materializes. It is always good to be prepared.
After all, failing to plan is planning to fail, for example, if your project is to organize an outdoor event and one of the risks is a threat of rain. If you do nothing to prepare for this and halfway during the concert it starts to rain heavily, it’s a bit too late to start erecting a tent or ordering plastic ponchos to distribute.
PRINCE2 Responses to Threats and Opportunities
Threat Responses
- Avoid
- Reduce(probability and/or impact)
- Fallback(reduces impact only)
- Transfer(reduces impact only, and often only the financial impact)
Opportunity Responses
- Exploit
- Enhance
- Share
- Accept
- Reject
It’s important to note that responses do not necessarily remove the risk. Most of the Risk Response actions taken in a project are done to reduce the Risk Impact.
To help to decide the type of responses that are best to use to reduce the impact of the risk, you can look in the Lessons Learned report from similar projects that have already been done.
PRINCE2 suggest 6 responses for threats and four responses for opportunities.
The 6 responses for threats are: Avoid, Reduce, Fallback, Transfer, Share and Accept
The 4 responses for Opportunity are Exploit, Enhance, Share and Reject.
I mentioned “Share” twice as it both a response to threats and to opportunities.
Plan the Responses to PRINCE2 7 Threats
Here I will explain the different responses to Threats and give an example of each, as we have already seen, the responses are: Avoid, Reduce, Fallback, Transfer, Accept and Share.
Response Avoid:
This involves changing something in the project so that the threat no longer has impact or can no longer happen. You avoid the risk.
Example:
You are organizing an outdoor concert for 600 people in April in the UK. One of the risks is that it may rain, so you decide to move the concert indoors thus avoiding the risk. This response has removed the threat. Now, if it rains, then the rain has no impact on the concert.
Response Reduce:
Here, actions are taken to:
a) Reduce the probability of the risk
b) Reduce the impact if the risk does occur
To help understand this, I will give an example of both reduce probability and reduce impact. Reduce response is the most common way of dealing with risks.
Reduce Probability:
The objective is to reduce the probability of the risk happening. Using the concert example with the threat from rain, we could move the concert to July where it’s 3 less times less likely to rain. This is a clear example of reducing the probability but the risk is still there.
Reduce impact:
The objective is to reduce the impact in case the risk occurs. Here, the organizers could order a load of sponsored plastic ponchos to be offered to the concert-goers when they arrive. If it does rain during the concert, the people would not get soaked from the rain and thus, you have reduced the impact of the rain.
Response Fallback:
Fallback is also referred to as contingency. See fallback as a fallback plan of actions that would be done if the risk occurs and therefore would become an issue. These actions will help to reduce the impact of the threat.
Example:
There is an important tennis game at Wimbledon in Centre Court which now has a roof that can be closed. The fallback plan is to close the roof once it starts to rain. This would not stop it from raining and it takes 5 minutes to close the roof of the tennis court, so the grass could still get a few drops of rain. This fallback plan does reduce the impact of the rain, however, and it allows the game to continue after the roof has been closed.
Note: The action of closing the roof is only done once the threat is real.
Response Transfer:
Here you can transfer the financial risk to another party. For example, using an insurance policy, you could recover the costs if the threat does happen.
Example:
Let us use the example of the concert again. One of the threats might be that one of your top acts might not be able to play at the event due to illness or some other reason. Concert-goers might want to have their money back but you have spent a lot of money already just organizing the event. So you take out an insurance policy to cover any losses you could incur if this risk does happen.
Response Accept:
Here, a decision is taken to accept the risk. It just may cost too much money to do something about it or it may not be possible to do anything about it. However, you do keep the status of this risk open and continue to monitor it.
Example:
There is a risk that another outdoor concert could be held around the same day as your concert and this might affect ticket sales. After some consideration, you decide to do nothing about it and continue as normal. Moving the concert to another time will just cost too much and some people have already bought tickets, so you just live with the risk.
Share:
Share is both a response for threats and opportunities. Share is very common in customer/supplier projects where both parties share the gain if the costs are less than the planned costs and share the loss, too, if the costs are exceeded.
Example:
In the concert example, suppose you have a supplier that provides VIP toilet facilities and people are charged €1 for each service. There is a certain fixed cost that you must pay to provide this service and you agree with the supplier to share the profits if the revenue is above this fixed cost amount and share the losses if it is below this amount.
We have covered the 6 responses to threats which are Avoid, Reduce, Fallback, Transfer, Accept and Share. I am sure that the examples included have helped to explain these.
Plan the Responses to opportunities
Here you will learn how to plan the responses to the opportunities. The responses to opportunities are: Share, Exploit, Enhance and Reject.
Note: For the exam, you just need to aware of what each response is.
Share:
I already covered “Share” when discussing the planning responses to threats. It’s where you share the profits and losses with another party.
Exploit:
Exploit is where if the risk does happen, you would take advantage of it and use it.
Example:
I will use the outdoor concert event project. The Risk is: Due to the fact that your local radio station regularly interviews artists who are playing in the local region, there is an opportunity to get your top artist interviewed, which would result in more publicity and selling more tickets. If this risk does happen, then you have agreed with the record company to exploit it and do the interview.
Enhance:
Enhance is where you take actions to improve the likelihood of the event occurring and you enhance the impact if the opportunity should occur. This is not the same as “Exploit,” but doing certain things will give a greater chance for the opportunity to happen.
Example:
The Risk is: Due to the fact that your local radio station regularly interviews artists who are playing in the local region, there is an opportunity to get your top artist interviewed, which would result in more publicity and selling more tickets.
So you take the following actions to enhance the likelihood of this happening:
- You contact the radio station’s managers with a suggestion
- You ask the record company to contact the radio stations
- You ask your other contacts at the radio station to make this happen
- You suggest the idea of a ticket giveaway with an interview.
So what is the difference with Exploit?
- With Exploit, if the risk does happen, then you take advantage of it
- With Enhance, you try to increase the chances of making it happen.
Reject:
This is where you identify an opportunity and decide not to take any action on this opportunity. There can be many reasons not to do this. For example, it could cause you to lose focus on your main objective, or the return on this opportunity could be low compared to the rest of the project.
Example:
There is an opportunity to invite another equally known guest star free from the same label as your lead top act; however, you decide not to go ahead with this, as you cannot mention the artist’s name on the posters and advertising, so you will not sell any extra tickets because of this. Also, it will cost you extra to provide facilities for this extra artist.
So it sounded like a cool idea, but did not bring any extra value to the bottom line for the concert, only extra costs.
The 4 responses for Opportunity were Share, Exploit, Enhance and Reject. Again, I hope the examples help your understanding.
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