Risk strategies: Avoidance and Acceptance

This post focuses on the two first risk management strategies, which we introduced last week. They are opposite each other and seeks by this totally different views and strategies. Take a look at the lasts posts to get the full overview!

Risk Avoidance

Some hazard risks pose such a great threat that even a partial reduction in either risk likelihood or consequences is unacceptable, given the possible outcome of a realized event. For these risks, only total risk avoidance is acceptable, which is why action it is deemed necessary to reduce either the likelihood or the consequence factor to absolute zero.  

By stepping away from the business activities involved or designing out the causes of the risk, you can avoid the occurrence of the undesired events. Some opportunities to avoid risk are to exit the business, cancel the project, close the construction, etc.. This strategy has its consequences: In some cases, we even create additional risks by trying to avoid a particular risk. For instance, we may be tempted to choose a supplier with a proven track record instead of a new supplier, that offers significant price incentives. On one hand we choose not to take any chances, but at the other hand we could also miss out on the benefits we could have received by choosing a new supplier. Even though this has other consequences, it is an option.

Eliminating a risk is the best technique you can apply. If the project manager can avoid the risk, surely it is the best way to avoid negative impacts derived from it on the project.   Managing risk in this way is most like how people address personal risks. While some are more risk-loving and some more risk-averse, everyone sure has a tipping point, where things become just too risky and not worth attempting.

Risk Acceptance

Some associated risks for certain hazards are considered to be acceptable “as is”. It may be determined that any further reduction in risk is either too expensive or unnecessary. Several reasons might lead to this decision.
First, every project team has a whole range of hazards with which it must contend, and there assuredly is limited funding to treat those ranges of hazards. Some risks, as determined through cost-benefit analyses, are better left untreated, with the purpose of treating other hazards for which risk reduction will have greater value. All projects will have risks that are so small in terms of consequence or likelihood of occurrence that they are accepted without discussion. This could be going ahead with an event despite the risk of rain, or deciding to take part in a risky activity, which is well managed and supervised, but still risky.
Second, some risk reduction measures can result in one or more undesirable consequences. These secondary hazards may be expected to arise as a direct result of the mitigation measure. In which cases can be considered more damaging or undesirable that the consequences of the hazard risk. Furthermore, the secondary hazards are not discovered until after mitigation has been conducted – in this case you need to decide whether or not to dismantle the new protection mechanisms.
In most cases, risk acceptance is entertained or applied not when risk reduction or avoidance measures are unavailable, but when they are unaffordable.

Source:

Coppola, D. (2015): “Introduction to international disaster management”

About the Author

Julie Hviid

jh@rocconsult.eu

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