Insurance Plan for High Probability and Medium Consequence Risk
Question
A risk with a high probability and medium consequence to a project has been identified.
In response, the project manager has purchased an insurance plan with the intent to provide additional funds if the risk is realized.
There is no risk to the schedule or scope.
Which of the following types of risk strategies is this an example of?
Answers
Explanations
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A. B. C. D. E.B.
Explanation - Transfer: Moving the liability for the risk to a third party by purchasing insurance, performance bonds, and so on Excerpt From: Kim Heldman.
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The risk strategy being employed in this scenario is "Transfer risk", which is answer B.
Risk transfer is a risk management strategy where the risk is transferred to a third party, who agrees to assume the risk and is responsible for any costs or losses resulting from the risk. In this case, the project manager has purchased an insurance plan to transfer the financial risk associated with the high probability and medium consequence risk to an insurance company.
The project manager has recognized that the probability of the risk occurring is high, and the consequence, while not severe, is significant enough to warrant additional coverage. The purchase of insurance is a common way to transfer risk, as it provides a means of mitigating financial loss associated with an identified risk.
It is important to note that the project manager is not avoiding the risk or attempting to eliminate it, nor is the risk being exploited. Additionally, because the purchase of insurance does not impact the project schedule or scope, it does not represent a risk mitigation strategy.
Therefore, the answer is B. Transfer risk.
