Risk Transfer Strategy: Performance Bonds for High-Impact Risks
A project manager is creating a risk response plan for a predictive construction project. One risk has a high probability and high impact. The team decides to purchase insurance to cover potential losses. Which risk response strategy is being used?
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
Purchasing insurance transfers the financial impact of the risk to a third party (the insurer), which is the definition of the transfer strategy. Option A (Avoid) is incorrect because avoidance eliminates the risk entirely, e.g., by not performing the activity; insurance does not eliminate the risk. Option B (Accept) is incorrect because acceptance means acknowledging the risk and taking no proactive action, often setting aside a contingency reserve; purchasing insurance is an active response. Option C (Mitigate) is incorrect because mitigation reduces the probability or impact of the risk; insurance does not reduce the likelihood or severity of the loss, it only shifts the financial burden.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
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Avoid
Why it's wrong here
Avoidance eliminates the threat by removing its cause or changing the plan, whereas insurance leaves the risk event possible and compensates losses. Avoid is tempting because it fully removes exposure, and it would be correct if the project could redesign scope to sidestep the risk entirely.
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Accept
Why it's wrong here
Accepting acknowledges the risk and sets aside a contingency reserve without reducing probability or impact; buying insurance transfers the financial exposure to a third party. Accept is tempting because it needs no action, and it would be correct for low-priority risks where active responses cost more than the exposure.
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Mitigate
Why it's wrong here
Mitigation reduces probability or impact through actions such as redundancy or inspections; insurance does not lower either, it shifts the financial consequence to the insurer. Mitigate is tempting because it is the common default for high-probability, high-impact risks, and it would be correct for reducing likelihood through preventive measures.
- ✓
Transfer
Why this is correct
Purchasing insurance transfers the financial consequence of the risk to a third party, satisfying the high-probability, high-impact threat in this predictive construction project. Unlike mitigation, which reduces probability or impact, transfer shifts ownership of the loss to the insurer while the risk itself remains.
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Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
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