Answer to Question #65752 in Finance for Abdul

Question

Discuss the various risk management strategies.

Answer 1

There are 4 main strategies to manage risk: mitigation, avoidance, transfer and acceptance.
Mitigation diminishes risk probability and outcomes that it may provoke. It consists in implementation some controls that aim to reduce negative impacts of risk occurrence, while not completely eliminating them (e.g. process standardization).
Avoidance reduce the probability of specific risk before it reifies. As a rule, this specific risk elimination may cause other risk occurrence but less harmful or easier to deal with. (e.g. process redesign).
Transfer forwards risk to other party that is responsible for its consequences in case a risk has materialized (e.g. insurance, outsourcing).
Acceptance includes the risk probability in the strategy planning, as it is unavoidable. This strategy also fits to small risk that are not too harmful and easy to overcome.