Risk Management

Question 1

Risk management

Answer 1

Having to plan for how to deal with possible future losses through:

1. ) Avoidance
2. ) Reduction
3. ) Transference
4. ) Retention

Question 2

Risk avoidance

Answer 2

Eliminates risk by not taking an action that involves risk.
-Ex.: Campbell’s Snorkeling Gear decides not to open a new store on the coast of NC in order to avoid the potential risks of unreliable employees, liability lawsuits, and windstorm damage.

Question 3

Risk reduction (aka: Risk mitigation)

Answer 3

Taking measures to reduce the risk involved in an action.
-Ex.: Campbell’s Snorkeling Gear reduces risk by renting a store, rather than buying. They also implement random employee drug testing and a building alarm system.

Question 4

Risk Transference

Answer 4

• Management of severe risks by transferring the risk to another party.
• Most common example: insurance
• Ex.: Campbells Snorkeling Gear transfers the risk of wind and hail damage to the insurance company by purchasing property insurance for their building.

Question 5

Risk retention

Answer 5

Acknowledging the risks and preparing to handle unexpected losses that may occur.
-Ex.: Campbells Snorkeling Gear retains the risk of damage to their company trucks by choosing not to purchase comprehensive insurance coverage for them.

Question 6

Risk Management Techniques

Answer 6

Severity vs. Frequency:

1. ) High severity and High frequency= avoid
2. ) High severity and Low frequency= Transfer (insurance)
3. ) Low Severity and High frequency=Reduce
4. ) Low severity and low frequency= Retain

Question 7

4 Risk Management techniques:

Answer 7

1. ) Risk Avoidance eliminates risk
2. ) Risk Reduction reduces or mitigates risk
3. ) Risk Transference means paying someone else to take on risk
4. ) Risk Retention assumes or accepts risk.