HKSM
Risk Transference
A risk response approach where the project team moves the potential impact of a threat to another party and gives that party responsibility for handling the response.
Key Points
- Shifts both the consequence of the threat and response ownership to a third party.
- Does not remove the risk; it reallocates it, often for a fee or through a contract.
- Common tools include insurance, warranties, performance bonds, and fixed-price contracts.
- Works best when the third party is better equipped to manage the risk; ensure clear contract terms.
Example
A project purchases professional liability insurance and requires a performance bond from a vendor. If defects occur, the insurer or surety pays and manages the claim, not the project team.
PMP Example Question
A project manager buys insurance to cover potential damages from a high-risk activity and requires a performance bond from the contractor. Which risk response strategy is being used?
- Avoidance
- Mitigation
- Transference
- Acceptance
Correct Answer: C — Transference
Explanation: Insurance and performance bonds move the financial impact and management of the threat to a third party, which is risk transference.
