By using these four methods of risk treatments, known risks can be dealt with promptly and effectively. Even sudden risks not previously identified can be dealt with in a manner that will not jeopardize your project.

Avoidance
Avoiding risk may sound simple, but sometimes it may end up costing more to avoid risk than to actually face it head on. To determine if you should use avoidance, ask yourself the following:

If the risk manifests itself, can your project absorb its costs relatively easily?

Will putting avoidance measures in place unnecessarily increase your costs or delay your project?

If you answer yes to both, avoidance may not be your best bet in handling risk. Being too cautious can increase costs and time and you may be avoiding a risk that is not as detrimental as it seems.

Reduction
Reducing risk is very common. Putting in safety features, staying informed of threats, and other forms of preventive measures all help in reducing risk to acceptable levels. Usually used in combination with avoidance, reduction can help the control of costs associated with risks that are encountered. In other words, avoidance can be costly in terms of time and money, but by reallocating resources towards reducing either the chance of occurrence or the severity of occurrence, the risk can be reduced to acceptable levels. Reduction also gives you flexible options, which avoidance does not. Avoidance is all-or-nothing while reduction allows for options more suited for the real-world business environment.

Retention
Retention of some sort of contingency resources for risks that may appear take all sorts of forms. For instance:

Budgeting takes into account unforeseen circumstances so that, if funds allow, a cushion exists. The upside is that if the unforeseen circumstances transpire, the funds are there to cover them. The downside is that if they don’t, the funds that were tied up here may have been of use in another department or project.

Project management takes into account extra time that may be needed on a project. The upside is that enough time is used to make sure a project is done correctly. The downside may be that resources may be tied up or other projects may be delayed unnecessarily due to an overly cautious schedule.

Retention increases resources by managing them effectively. If retention is added to the mix, greater resources can be amassed to handle any risk that happens. The only downside to this is that resources may be tied up in preparing for something that may never happen. In my opinion, retention is a secondary tool to reduction.

Transfer of Risk
Transferring the costs of risks are what insurance policies are all about. The reason why this is a popular method of risk management is because many entities that face similar risks pool their resources together to share a risk, and the pool handles payment. In terms of project management and risk assessment, your first job is to see if you have any obligations to necessitate transfer of risk. Is your project in a high risk area? Do you need special equipment or materials that are volatile or expensive to replace? Can you afford insurance in your project?

Transferring risk is only applicable when you have special circumstances under which to perform a project. After reduction and retention, discuss with others in your group whether transfer is a viable option.

When planning a project and doing an assessment of the risks you face, remember that managing your risk can help you in getting your project done on time and on budget, even if foreseen circumstances occur. Reduction is a great tool if you have limited resources. Retention can also help if you have the resources to commit to this type of contingency fund. If there are special circumstances, think about transferring risk through insurance. Finally, use avoidance only in situations where the risk presents a catastrophic cost if it occurs.