Risk Responses, Reserves & Contract Types
Threat and opportunity response strategies, contingency vs management reserve, residual and secondary risks, and which party carries the risk in each contract type.
All 14 cards in this deck
1.What are the five response strategies for threats?Show answer
Escalate, Avoid, Transfer, Mitigate, and Accept.
2.What are the five response strategies for opportunities?Show answer
Escalate, Exploit, Share, Enhance, and Accept.
3.What is risk transference? Give an example.Show answer
Shifting ownership of a threat and its impact to a third party — e.g. insurance, warranties, or a fixed-price contract. The risk still exists.
4.What is the difference between risk avoidance and mitigation?Show answer
Avoidance eliminates the threat entirely (e.g. changing scope or approach). Mitigation reduces its probability and/or impact.
5.What is the difference between contingency reserve and management reserve?Show answer
Contingency reserve covers identified risks ("known-unknowns") and is part of the cost baseline. Management reserve covers unidentified risks ("unknown-unknowns"), sits outside the baseline, and needs management approval to use.
6.What is a residual risk?Show answer
The risk that remains after a risk response has been implemented.
7.What is a secondary risk?Show answer
A new risk that arises as a direct result of implementing a risk response.
8.What is a workaround?Show answer
An unplanned response to a threat that has occurred and had no response planned (or the planned response failed).
9.What is the difference between risk appetite and risk threshold?Show answer
Risk appetite is how much uncertainty an organization is willing to accept in pursuit of its goals. Risk threshold is the measurable level of exposure above which a risk must be addressed.
10.Which contract type puts the most risk on the seller?Show answer
Firm Fixed Price (FFP) — the seller must deliver for the agreed price regardless of their actual costs.
11.Which contract type puts the most risk on the buyer?Show answer
Cost-reimbursable contracts, especially Cost Plus Percentage of Cost (CPPC), where the seller’s fee rises as costs rise.
12.What is a Cost Plus Fixed Fee (CPFF) contract?Show answer
The buyer reimburses the seller’s allowable costs and pays a fixed fee that does not change with actual costs.
13.When is a Time and Materials (T&M) contract typically used?Show answer
For small engagements or staff augmentation where the scope cannot be defined precisely up front. It is a hybrid of cost-reimbursable and fixed-price (fixed unit rates).
14.What is a Fixed Price Incentive Fee (FPIF) contract?Show answer
A fixed price with a financial incentive tied to meeting agreed metrics (e.g. cost, schedule or performance), usually with a ceiling price.
More flashcard decks
Ready to apply it? Try scenario-based practice questions or the printable PMP cheat sheet.