Review the following diverse risk management scenarios and match each specific business action to the corresponding fundamental method of handling risk.
- A toy manufacturer completely halts production of a motorized scooter line to eliminate potential injury liabilities.Risk Avoidance
- An accounting firm purchases a comprehensive cyber liability insurance policy to shift the financial consequences of a potential data breach.Risk Transfer
- A commercial bakery installs an automatic fire suppression system and mandates rigorous daily safety inspections.Risk Reduction
- A grocery chain opts to pay for minor customer slip-and-fall claims out of a dedicated internal cash reserve.Risk Retention
Answer
Halting production matches Risk Avoidance. Purchasing insurance matches Risk Transfer. Installing a fire suppression system matches Risk Reduction. Paying claims from an internal reserve matches Risk Retention.
Each scenario corresponds directly to one of the primary methods of handling risk. Avoidance eliminates the risk entirely, Transfer shifts the financial burden to an insurer, Reduction mitigates the severity or frequency of a potential loss, and Retention involves assuming the financial cost internally.
Step-by-Step Solution
Key Concept
Methods of Handling Risk (STARR)
Estimated Time:1m 0s