CompTIA Project+ Practice Test

Which risk response strategy involves the use of insurance or performance bonds?

1. Risk acceptance

2. Risk mitigation

3. Risk avoidance

4. Risk transfer

The correct answer is: Risk transfer

The strategy that involves the use of insurance or performance bonds is risk transfer. This approach allows project managers to shift the financial impact of a risk to a third party, such as an insurance company or a bonding agent. By doing so, the project team protects the project budget and schedule from the direct effects of identified risks. In practical terms, purchasing insurance is a way to handle risks by transferring the responsibility of financial loss to an insurer. When using performance bonds, a project may secure funds necessary to complete a project should the original contractor fail to fulfill contractual obligations. This contributes to minimizing potential losses associated with risks which could otherwise affect the project's success or completion. Other strategies like risk acceptance, risk mitigation, and risk avoidance have different focuses. Risk acceptance involves acknowledging the risk and deciding to proceed without any special measures, risk mitigation aims to reduce the impact or likelihood of a risk, and risk avoidance seeks to eliminate the risk entirely by changing plans or objectives. Each of these approaches has its benefits, but when it comes to transferring potential financial burdens to another party, risk transfer is the appropriate strategy.