You are managing a manufacturing project to develop a new production line. During a risk review meeting, the engineering team identifies a potential risk: a key piece of automated equipment might not integrate properly with existing systems, which could delay commissioning by four weeks. The probability is assessed at 40% and the impact would be $150,000 in additional costs. After discussing response strategies, the team proposes purchasing a backup manual system for $45,000 that could be used if the integration fails. What risk response strategy does this represent?

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Accepted Answer

The correct answer is A. This is risk mitigation because purchasing the backup system in advance reduces the potential impact of the integration failure from $150,000 and four weeks to a more manageable situation. Mitigation involves taking action to reduce either the probability or impact of a risk. While the manual system serves as a backup, the $45,000 is spent proactively, not contingently, making it an active mitigation investment. This is not transference (option B), which involves shifting risk to a third party, typically through insurance or contracts. It's not a contingent response (option C) because the money is spent upfront, not only if the risk occurs. It's not avoidance (option D) because the risk still exists—the automated equipment might still fail to integrate; the backup system just reduces the negative consequences.

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