Not an Example of Transference Risk Response
Question
The risk transference is referred to the transfer of risks to a third party, usually for a fee, it creates a contractual-relationship for the third party to manage the risk on behalf of the performing organization.
Which one of the following is NOT an example of the transference risk response.
Answers
Explanations
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A. B. C. D.D.
Among the given options, Life Cycle Costing is not an example of the risk transfer response.
Risk transference is a risk response strategy where the risk is transferred to a third party along with the responsibility to manage it. The third party usually charges a fee for their services and creates a contractual relationship with the performing organization. The objective of risk transference is to reduce the impact of the risk on the organization by sharing the risk with a third party that is better equipped to handle it.
Here are the examples of the risk transference response strategies:
A. Warranties: A warranty is a contractual agreement between two parties, where the seller or service provider agrees to repair or replace a product or service if it fails to meet the agreed-upon specifications. In this case, the seller is transferring the risk to the buyer, who bears the cost of any failures or defects.
B. Performance bonds: A performance bond is a contract between a client and a contractor, where the client pays a fee to the contractor to guarantee that the contractor will perform the project as per the contract terms. If the contractor fails to meet the contract terms, the client can claim the performance bond amount to cover the damages. This transfer the risk to the contractor who bears the cost of any failures or damages.
C. Use of insurance: Insurance is a contractual agreement between the insurer and the insured, where the insurer agrees to compensate the insured for any losses that may occur due to a specific event, in exchange for a premium. In this case, the insured is transferring the risk to the insurer who bears the cost of any losses or damages.
D. Life cycle costing: Life cycle costing is a cost management technique that considers the entire life cycle of a product or service, from design to disposal. It is used to identify the total cost of ownership, including direct and indirect costs. However, life cycle costing is not a risk transference strategy as it does not involve transferring the risk to a third party.
In summary, the correct answer to the question is option D. Life cycle costing is not an example of the risk transference response strategy.
