PRINCE2F PRINCE2 Practices Practice Question
A project has identified a risk that a supplier may go bankrupt. The Project Manager decides to purchase insurance against this possibility. Which risk response type has been applied?
⚠ Common exam trap
Many candidates confuse Transfer with Reduce, thinking that buying insurance reduces the risk impact, but PRINCE2 specifically categorizes insurance as Transfer because the financial liability is shifted to another party, not reduced internally.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Transfer
Transfer is the correct risk response because the Project Manager is shifting the financial impact of the supplier bankruptcy risk to a third party (the insurance company). In PRINCE2, Transfer involves passing the risk to another party, often through insurance or contractual terms, without eliminating the risk itself. This response type is appropriate when the risk cannot be reduced or avoided but can be financially covered by an insurer.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
Transfer
Why this is correct
Purchasing insurance transfers the financial impact of supplier bankruptcy to the insurer, satisfying the stem's constraint of a third party absorbing the loss. Under PRINCE2, transfer shifts ownership of the risk's financial consequences, though the threat itself remains; the insurer now bears the cost should bankruptcy occur.
- ✗
Accept
Why it's wrong here
Acceptance involves no proactive action and no contingency beyond documenting the risk and monitoring it; buying insurance is an active transfer of financial impact. Acceptance is correct for low-probability, low-impact risks where the cost of any response exceeds the exposure.
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Share
Why it's wrong here
Sharing transfers some or all ownership of a risk to a third party who gains from the opportunity, such as a joint venture or partner consortium. Insurance is a financial arrangement, not a shared upside. Buying cover against supplier bankruptcy is therefore transferring the risk, not sharing it.
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Reduce
Why it's wrong here
Reduce would involve actions to lower the probability or impact, not transfer via insurance.
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Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
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