PMI Risk Management Professional Practice Exam

What risk response is demonstrated by inserting a penalty clause for late delivery in a contract?

1. Risk avoidance

2. Risk acceptance

3. Risk transference

4. Risk mitigation

The correct answer is: Risk transference

Inserting a penalty clause for late delivery in a contract exemplifies risk transference. This approach involves shifting the financial consequences or impact of a risk from one party to another. By including a penalty for late delivery, the responsibility and potential costs associated with delays are transferred from the party expecting timely delivery to the party responsible for ensuring that delivery occurs on time. This means that if delays occur, the party who is late is now facing the repercussions (in the form of penalties), rather than the other party bearing the risk of delivery delays. Risk transference is a common strategy in risk management as it allows organizations to mitigate their exposure to certain risks by contractually obligating another party to assume responsibility for them.