In this instructional video, Helena Liu walks PMP exam candidates through the essential risk response strategies outlined in the PMBOK Guide. She begins by defining risk as an uncertain future event and distinguishes between threats (negative risks) and opportunities (positive risks), noting that realized risks become issues. The core of the lesson covers the five standard strategies for handling threats—avoid, mitigate, transfer, escalate, and accept—each explained with concrete project examples, including schedule adjustments to avoid elections, contract negotiations to mitigate supply price volatility, insurance to transfer risk, escalation to senior management for regulatory risks, and passive versus active acceptance with contingency reserves. Liu then introduces the concept of residual and secondary risks that persist or arise after response plans are implemented. The second half mirrors the threat strategies with five approaches for opportunities—enhance, exploit, escalate, accept, and share—again illustrated with scenarios such as compressing schedules to capture a new contract, fully committing resources to exploit an opportunity, escalating to senior leadership when authority is lacking, accepting low‑impact opportunities, and partnering with another firm to share an opportunity. The video concludes with a concise exam‑focused summary of key points for both threats and opportunities and a promotional call‑to‑action for a free PMP preparation course.
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Hello and welcome to ExamsPM's PMP Exam Tips series. In this video, we are going to cover the risk response strategies that you need to know for your upcoming PMP exam. And if you haven't done so already, be sure to sign up for our 1.5-hour free course at www.exampm.com-free where I will break down the exact strategies that you need to follow in order to clear your PMP painlessly in the next 6 weeks. Okay, now let's get started with our risk response strategies. Now, first of all, we need to discuss what is a risk. A risk is an uncertain event that may or may not happen in the future, so there's uncertainty around it. If the risk actually became a reality on your project, then that's called an issue. Now, there are 2 types of risk that you may encounter on your project. The first type is a threat. These are also called negative risk. So Threats can hinder your project success or completion. You want to avoid and mitigate the impact of threats on your project. On the flip side, we have opportunities. Opportunities are also called positive risk. These opportunities can help your project save costs, reduce your schedule, create other benefits as well, and you want to increase the probabilities of these opportunities happening on your project. In the PMBOK Guide, there are 5 strategies listed to help you handle threats and handle opportunities. You need to manage both threats and opportunities on your project. The 5 strategies to manage threats are transfer, avoid, mitigate, escalate, and accept. Now let's take a closer look at all 5 of these strategies because you do need to know them for your upcoming PMP exam. The first one is to avoid. This is the best strategy to manage risk if it's an available option to you. So here you avoid the risk by changing your scope, your plan, or your schedule. You use this risk when The risk is critical and your sponsor or your client really doesn't want this risk to occur. Let's look at an example of an avoid risk strategy. Let's suppose that the government in your local city is going to hold an election between May 5th and May 10th. Therefore, you schedule your activities outside of this period in order to avoid clashing with the election dates. This is an example of the avoid risk response strategy because you changed your schedule to keep your project activities from clashing with the election. Now let's take a look at our second risk mitigation strategy, which is to mitigate. In the mitigate risk response strategy, you try to minimize the probability of the risk occurring and its impact that it will have on your project. So let's take a look at an example. There are certain supplies that you will need for your project that may not be easily available during the peak season of your project. Therefore, what you do is you contact a few suppliers, you negotiate a contract to get these supplies at a predetermined price that you both agreed on and at the predetermined rate. So here, if the supplies do become cheaper, then you will still have to pay the predetermined price. But if, let's say, there was currency fluctuations and that supply becomes much more expensive, you still get it at the predetermined rate that's agreed upon in your contract. So this risk response strategy only reduces the probability or the impact of that risk. After developing the responses, there will still be a residual risk which you still need to monitor, and we'll talk about residual risk in just a little bit. The 3rd risk mitigation strategy is to transfer. The transfer risk response strategy is used when you cannot manage the risk on your own. So for example, you may be lacking the resources, Or you're just busy with other activities. So here, the management of the risk is transferred to a third party. So if the risk does occur, they are responsible for managing it. So insurance policy is a great example of a risk response strategy. So here, you purchase the insurance policy, and therefore you transfer that risk into a third party in exchange So please note that this strategy can cause a secondary risk to you. So for example, though you asked a third party to manage the risk, you are still responsible for the guarantee with the client. Okay, our 4th risk response strategy is to escalate. This risk response is used when you lack the authority to manage the risk. So here you approach your PMO or your project management office or your management team to help you manage the risk. Once they agree that the management of the risk will be transferred to them, your responsibility is just limited to monitoring it. So here is an example. The government is planning a regulation, and if it is approved, it could significantly negatively impact your project. You have no legal advisors or other resources to manage this risk on your project, so this is kind of beyond your scope of management. However, since this risk will still have an impact on your project, you need to manage it. Therefore, you approach your management team to help you manage this risk. So you are the project manager dealing with an issue that's beyond your capabilities. Here you don't have access to the legal advisors to advise you, and you don't have the power to implement a solution. Therefore, you escalate this risk and pass it on to your management team that will help you approach and assess and manage this risk accordingly. And the last risk response strategy, the 5th one we will discuss, is to accept. In the accept risk response strategy, you take no action except to acknowledge it. So you just accept that the risk exists, and if it happens, you'll deal with it. There are 2 different types of acceptance. So there's passive acceptance and active acceptance. So in active acceptance, you will keep a contingency reserve to manage the risk if it does occur. Whenever you're doing your budgets, you always want to add on a contingency reserve reserve reserved for known, unknown risk that may occur. And passive acceptance is you note it in your risk register and you take no further actions. You don't even keep a contingency reserve in case that risk does occur. Generally, this strategy is used for non-critical risks that are in your risk register. Now, after you have implemented your risk response plans, sometimes there will be a secondary risk, also called a residual risk. So this is a risk that still remains after you have implemented your risk strategy. So for example, let's say that you are managing a construction project and there is a chance of rain that may last for 2 hours. Therefore, you create a contingency plan to help you manage this risk. However, what if that rain lasts for more than 2 hours? Now you must analyze the situation and create a fallback plan to manage this residual risk. This is a risk that's So this is the primary risk, and this is the risk that still remains after you have already implemented your contingency plan. Another type of risk is called the secondary risk. So the secondary risk arises after you have already implemented your risk response plan. So sometimes after you implemented your risk response plan, this would trigger more risk to occur, and these risks that occur because you have implemented your risk response plan is called your secondary risk. Now that we covered the 5 strategies to deal with threats or negative risk, now let's turn on the positive side and let's take a look at the 5 strategies that you can use to help you manage your opportunities on your project. So on a high level, these 5 strategies to manage opportunities are enhance, exploit, escalate, share, and accept. Now let's dive into more details about each of these 5 strategies, starting with enhance. In this risk response strategy, you increase the chances of the opportunity happening, so there is an increased chance that you will be able to realize it on your project. This is the opposite of the mitigate risk strategy that we looked at earlier, which reduces the probability of this risk happening. So let's say that your project will be completed in 3 months from now, and you find out that an organization is about to release a similar project in 2 months. So if you're able to finish your current project in 2 months, you'll be able to get this new project. So this is an opportunity for you. Therefore, you compress the schedule of the current project so that you can finish ahead of time so that you will have a chance to bid on the new project. Here you're using the enhance risk strategy. You want to enhance and increase the probability of realizing this new opportunity. The second type of risk response strategy for opportunities is to exploit. In the exploit risk response strategy, you make sure that the Opportunity, where the positive risk is realized. This response strategy is opposite of the avoid risk management strategy, where you ensure that the risks do not occur at all. In other words, when you're exploiting the opportunity, you're doing everything you can in order to make sure that this opportunity can be realized for your project. Next up, we have escalate. So you will use this risk response strategy when there is an opportunity for you on your project, but you can't realize it because you don't have have the power to. So in order to realize this opportunity, you need to escalate it. You need to approach your management team or your PMO office, and you will have them agree to manage this opportunity for you in order for you to realize this opportunity for your project. Even though when you escalate it, it is still your job to monitor this opportunity or positive risk for your project. So let's take a look at an example. If you team up with another project team from a big organization, you can jointly bid for a project. However, you don't have the authority to contact this other organization, and you simply don't have all of the resources available on your project team right now to seal this deal. So you ask your management team to approach them and make the arrangement. This is an example of the escalate risk response strategy because here you don't have the authority or the communication channel to speak to the head of the other organization to negotiate and seal the deal. Therefore, you escalate the issue to your management and they will take care of it. Our next risk response strategy is accept. The accept risk response strategy can be used with both types of risk, positive or negative. Here you're just taking no action, and if the positive risk or the opportunity occurs, you will benefit from it. If it doesn't, you're not doing anything in order to realize it. So you will use this strategy when the cost of the response is high and there is small chance of it occurring where the benefit just doesn't really outweigh the effort involved to make sure that it is realized. So let's take a look at an example. You know that a supplier may have spare equipment that you can use for your project for a short period of time at a low price. Since there is no guarantee that you will need this equipment, you don't take any action. This is an example of the accept-risk response strategy because here you don't take any action in order to realize the opportunity. When it comes time that you may need this equipment, you approach the supplier and ask them if you can borrow it at a low price for a short period, period of time. If it's available, you'll take it, and if it's not, you will just have to pay whatever the market price it is for that. And our last risk response strategy for opportunities is to share. So in the share risk response strategy, you will invite or join someone else in order to realize the opportunity together because perhaps you don't have the ability to realize it on your So let's take a look at an example. Due to the lack of expertise, you are not able to bid for a specific construction project, but your management team really wants this project in order to expand their portfolio. Therefore, you decide to team up with another company that has experience in these areas that your company currently lacks and jointly bid for this project. So in this example, you are using the share risk response strategy because you're sharing the opportunity with another partner. Okay, now let's take a look— now let's summarize everything that we have learned so far during this video. Let's take a look at the key points for threats that you need to know for your exam and the key points for opportunities. So let's start off with the threats. So if the negative risk is critical, you want to use the avoid risk response strategy. If you are able to decrease the impact of the risk to an acceptable level, then you can use the mitigate risk response strategy, be sure to also have a fallback plan for the residual risk that still remains after you have implemented your risk responses. And if you cannot manage the risk on your own, you want to transfer it to a third party such as an insurance policy. Usually the company will take a fee in exchange for managing the risk for you. And lastly, if managing the risk is beyond your capabilities, you want to escalate this risk response strategy to your management team. Okay, now let's take a look at the key points for opportunities. You can accept the risk response strategy when the risk is not that important or if it's just too costly to implement the response. If you want to realize an opportunity, you will use the enhance risk response strategy in order to increase the probability of that risk or opportunity from happening. If you want to make sure that the opportunity is realized 100%, you want to use the exploit risk response strategy. And lastly, If you want the opportunity but you can't go about it on your own, you want to use a shared risk response strategy. So that's just a quick overview of everything that we covered so far. If you like this video, if you learned something here, please sign up for a free training where you will learn exactly how you can pass your PMP certification in the next 6 weeks. To sign up, just go to www.examspm.com/free. I can't wait to see you on this training. I'll also leave the link below as well. And see you in the training.
