Risk Transference is a risk response strategy that involves shifting the impact of a threat to a third party, together with ownership of the response.
It does not eliminate the risk but reallocates responsibility and liability to another entity—typically through contracts, insurance, warranties, or outsourcing—better positioned to manage or absorb the risk.
Key Characteristics
- Threat-Focused – Applied specifically to negative risks
- Ownership Shift – Transfers both risk and the obligation to respond
- Formalized in Agreements – Implemented through legal or financial instruments
- May Incur Cost – Often involves payment or trade-offs to externalize the risk
Example Scenarios
- Purchasing insurance to cover financial loss from potential project disruptions
- Outsourcing high-risk development tasks to a vendor with specialized expertise
- Including penalty clauses in a supplier contract to offset delivery risk
Role in Risk Response Planning
- Reduces Internal Exposure – Limits the project’s direct liability
- Leverages External Capabilities – Utilizes third parties better equipped to manage the risk
- Requires Oversight – Necessitates managing the agreement and ensuring accountability
- Complements Other Strategies – May be combined with mitigation for residual risks
See also: Risk Acceptance, Risk Avoidance, Risk Enhancement, Risk Exploiting, Risk Mitigation, Risk Sharing.