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ACCA Strategic Professional · Strategic Business Leader · Leading and managing projects

Baraka Telecom is building a network upgrade. A key risk is that the sole supplier of a specialised component may fail to deliver on time. The project board decides to sign contracts with two suppliers, each providing half of the requirement, even though unit costs rise slightly. Which risk response is this?

This is risk reduction (mitigation) through diversification. Using two suppliers lowers the chance and impact of one supplier failing, though the risk remains, at a slightly higher cost. It is not avoidance, because the dependency on suppliers is still there, and it is not insurance-based transfer.

  1. ARisk avoidance
  2. BRisk acceptance
  3. CRisk reduction through diversificationCorrect
  4. DRisk transfer by insurance

Explanation

Splitting supply across two suppliers lowers the likelihood and impact of a single supplier failing, so it mitigates the risk by diversification. The risk is not eliminated, so it is not avoidance. Nothing is accepted passively, and no insurer takes on the loss, so it is not transfer.

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