Discuss the techniques to manage risks, Financial Management

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Q. Discuss the techniques to manage risks?

Once risks have been identified and assessed, all techniques to manage the risk fall into one or more of the four major categories like avoidance, reduction, sharing and retention. Ideal use of these strategies may not be possible. Some of them may involve trade- offs that are not acceptable to the organization or person making the risk management decisions.

2. Risk avoidance - This includes not performing an activity that could carry a risk. Avoidance may seem the answer to all risks, but avoiding the risk also means losing out on the potential gain that accepting the risk may have allowed.

3. Risk reduction - Risk reduction or ‘Optimization" involves reducing the severity of the loss or the likelihood of the loss from occurring.

4. Risk sharing - Briefly defined as "sharing with another party the burden of loss or the benefit of gain, from a risk, and the measures to reduce risk.

5. Risk retention - Involving the accepting the losss, or benefit of gain, from a risk when it occurs. Risk retention is viable strategy for small risks where the cost of insuring against the risk would be greater over time than the total losses sustained.


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