What Are the Common Ways to Respond to Risk Management

written by: Ralph T. Dowson; article published: year 2007, month 03;

In: Root » Business » Management

  Share  
|
  PL  |  NL  |  FR  |  ES  |  PT  |  IT  |  DE  |  DK  |  NO  |  SE  |  FI  |  GR  |  JP  |  CN  |  KR  |  RU  |  AE


There are three standard ways to deal with risk:

1. Prevention — eliminating the cause before it is an issue

2. Mitigation — completing tasks to lessen the risk such as implementing a new strategy or purchasing insurance so that the risk of loss is shared with outside investors

3. Acceptance — noting the risk and accepting any consequences it may entail Therefore, action plans could avoid the risk completely, reduce the risk, transfer the risk (insurance), or recognize the risk and take a chance. The key determinant as to whether to take a more stringent approach (e.g., prevention) is dependent on the cost benefit relationship surrounding that risk.

The following corresponds a response for each known/unknown risk category:

§ Known risks. If the effect of the risk is large, chart a new strategy to prevent the risk or, if the risk effect is small, mitigate or accept the risk.

§ Unknown/known risks. First, estimate the effect of the risk and, depending on the projected risk magnitude, use the strategies explained for “known risks.”

§ Unknown/unknowns risks. As much as the likelihood and magnitude of this risk cannot be predicted, it is wise to add a contingency estimate to the project — for example, adding 10 percent of cost to a financial plan for “contingency allowances” without knowing exactly where this reserve will be applied.

Share

Disclaimer

1) E-articles is not responsible for the information contained by this article as well for any and all copyright infringements by authors and writers. E-articles is a free information resource. If you suspect this article for any copyright infringement, please read the terms of service and contact us or use the "Report this article" button on this page to investigate the problem.
2) E-articles is not responsible for inaccuracies, falsehoods, or any other types of misinformation this article may contain and will not be liable for any loss or damage suffered by a user through the user's reliance on the information gained here.