Placing Responsibility for Addressing Uncertain Future Events
Question
Which of the following is described as placing responsibility for addressing the potential effects of an uncertain future event on an entity outside the organization?
Answers
Explanations
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A. B. C. D.B.
The correct answer is B. Risk transfer.
Risk transfer is a risk management strategy where an organization transfers the potential financial consequences of an identified risk to another party. The transfer of risk shifts the responsibility for addressing the potential effects of an uncertain future event from the organization to another entity, such as an insurance company, a vendor, or a partner.
For example, an organization might transfer the risk of data breaches to a cybersecurity company by purchasing cybersecurity insurance. If a data breach occurs, the insurance company would be responsible for covering the financial losses of the organization.
On the other hand, risk avoidance is a risk management strategy where an organization takes steps to eliminate or avoid a specific risk altogether. This strategy is usually used when the potential impact of the risk is too great to be mitigated or transferred.
Risk exploitation, also known as risk acceptance, is a risk management strategy where an organization accepts the potential negative consequences of a risk in order to pursue potential rewards. This strategy is often used in situations where the potential rewards outweigh the potential losses.
Risk mitigation is a risk management strategy where an organization takes steps to reduce the likelihood or impact of a specific risk. This strategy is usually used when the potential impact of the risk is too great to be avoided or transferred.
