What is risk transfer?

What is risk transfer?

• A. Shifts the risk from the project to another party.
• B. Increases the overall risk to the project.
• C. Eliminates risk from the project.
• D. Affects only the budget, not the risk.

Answer: (A)

Risk transfer is shifting the potential adverse impact of a risk from the project to another party, typically through contracts, insurance, or warranties. The project still faces the risk, but the financial or liability consequences are borne by someone better able to manage them. For example, buying liability insurance transfers the cost of a claim to the insurer, and a fixed‑price contract can place certain cost overrun risks on the contractor. It’s important to note that transferring risk does not eliminate it; there is usually residual risk that remains with the project team. It also isn’t limited to the budget—it covers who bears consequences across cost, schedule, performance, safety, and quality.

Risk transfer is shifting the potential adverse impact of a risk from the project to another party, typically through contracts, insurance, or warranties. The project still faces the risk, but the financial or liability consequences are borne by someone better able to manage them. For example, buying liability insurance transfers the cost of a claim to the insurer, and a fixed‑price contract can place certain cost overrun risks on the contractor. It’s important to note that transferring risk does not eliminate it; there is usually residual risk that remains with the project team. It also isn’t limited to the budget—it covers who bears consequences across cost, schedule, performance, safety, and quality.