Reduce Risk with Effective Risk Management Programs

C.

Risk should be reduced to a level that an organization is willing to accept.

Reducing risk to a level too small to measure is impractical and is often cost-prohibitive.

To tie risk to a specific rate of return ignores the qualitative aspects of risk that must also be considered.

Depending on the risk preference of an organization, it may or may not choose to pursue risk mitigation to the point at which the benefit equals or exceeds the expense.

Therefore, choice C is a more precise answer.

Risk management programs are designed to identify, assess, and mitigate risks to an acceptable level. The ultimate goal of risk management is to reduce risk to a level that the organization is willing to accept, based on their risk appetite and tolerance. Therefore, option C is the correct answer.

Option A, "a level that is too small to be measurable," is incorrect because risk management programs are designed to manage risks, not eliminate them entirely. Risk cannot be completely eliminated, and it is not realistic to aim for a risk level that is too small to be measurable.

Option B, "the point at which the benefit exceeds the expense," is incorrect because while cost-benefit analysis is a key aspect of risk management, it is not the sole criterion for determining an acceptable level of risk. Other factors, such as the organization's risk appetite, legal and regulatory requirements, and social and ethical considerations, must also be taken into account.

Option D, "a rate of return that equals the current cost of capital," is incorrect because risk management is not primarily concerned with financial returns. While financial risks are an important aspect of risk management, other types of risks, such as operational, strategic, and reputational risks, must also be considered.

In conclusion, risk management programs are designed to reduce risk to a level that the organization is willing to accept, based on their risk appetite and tolerance.