NASCLA Accredited Commercial General ContractorGeneral RequirementsMedium
A general contractor is managing a multi-phase commercial office complex project. To effectively manage risks, the contractor decides to implement a risk management plan. Which of the following is an example of 'risk mitigation' for a potential project delay due to material shortages?
- AOrdering critical materials from multiple suppliers and maintaining a small buffer stock.
- BPurchasing project delay insurance from a third-party provider.
- CIdentifying material shortages as a potential risk during project planning.
- DIncluding a liquidated damages clause in the contract for late completion.
Show answer & explanationAnswer & explanation
Correct answer: A. Ordering critical materials from multiple suppliers and maintaining a small buffer stock.
Risk mitigation involves taking steps to reduce the likelihood or impact of a negative risk event. Ordering from multiple suppliers and maintaining buffer stock directly reduces the impact of a single supplier failure or unexpected shortage.
Why the other options are wrong
- B. Purchasing insurance is a form of risk transfer, not mitigation of the shortage itself.
- C. Identifying the risk is part of risk identification, not mitigation.
- D. A liquidated damages clause is a risk transfer/acceptance mechanism, not mitigation of the delay itself.
Risk Mitigation
Actions taken to reduce the probability of a risk occurring or to lessen the severity of its impact if it does occur.
- Proactive measures to minimize negative outcomes.
- Distinct from risk avoidance, transfer, or acceptance.
- Examples include backup plans, quality control, preventative maintenance.
Memory trick: Mitigate risks by making them smaller or less likely.