PMI Risk Management Professional Practice Exam

What risk response relates to obtaining a third party to handle negative consequences?

1. Mitigation

2. Transference

3. Acceptance

4. Avoidance

The correct answer is: Transference

Transference is a risk response strategy where the impact of a risk is shifted to a third party, typically through the use of contracts or insurance. By engaging a third party, an organization can manage or mitigate the consequences of potential negative outcomes associated with certain risks. This approach is common in situations where the organization wants to protect itself from financial loss or liability without entirely eliminating the risk itself. For example, when a company insures its assets, it transfers the financial burden of potential losses to the insurance provider. Similarly, outsourcing certain operations or processes to specialized vendors can also be seen as a way to transfer risk; if something goes wrong, the third party bears the responsibility for those consequences. In contrast, other response strategies like mitigation involve taking proactive measures to reduce the likelihood or impact of a risk, acceptance involves acknowledging the risk and preparing to deal with its consequences if it occurs, and avoidance means eliminating the risk altogether by opting not to engage in the activity that presents the risk. Transference specifically focuses on the delegation of negative consequences, which exemplifies why it is the correct choice in this context.