Which approach would BEST assist an enterprise in selecting a suitable risk response?

Which approach would BEST assist an enterprise in selecting a suitable risk response?

• A. An analysis of control costs and benefits
• B. Identifying risks that can be transferred
• C. The degree of change in the risk environment
• D. The likelihood and impact of various risk scenarios

Answer: (A)

The approach of analyzing control costs and benefits is pivotal for an enterprise when selecting a suitable risk response. This method involves evaluating the expenses associated with implementing a control against the potential advantages it may bring in mitigating risk. By understanding both sides—costs and benefits—organizations can make more informed decisions regarding which risk responses are not only feasible but also economically viable. This analytical evaluation allows stakeholders to concentrate their resources where they will have the most significant impact, ensuring that the chosen risk response aligns with the enterprise’s overall risk management strategy. It emphasizes the importance of value in risk management, advocating for solutions that provide the greatest benefit relative to their cost. The other approaches, while relevant in different contexts, do not optimize the decision-making process in the same way as analyzing control costs and benefits does. Knowing which risks can be transferred or contemplating the changes in the risk environment are important considerations, but they do not provide the same level of detailed insight into the financial implications of risk responses. Similarly, assessing the likelihood and impact of various risk scenarios is crucial for understanding risk exposure but does not directly translate into the selection of the most cost-effective risk response.

The approach of analyzing control costs and benefits is pivotal for an enterprise when selecting a suitable risk response. This method involves evaluating the expenses associated with implementing a control against the potential advantages it may bring in mitigating risk. By understanding both sides—costs and benefits—organizations can make more informed decisions regarding which risk responses are not only feasible but also economically viable.

This analytical evaluation allows stakeholders to concentrate their resources where they will have the most significant impact, ensuring that the chosen risk response aligns with the enterprise’s overall risk management strategy. It emphasizes the importance of value in risk management, advocating for solutions that provide the greatest benefit relative to their cost.

The other approaches, while relevant in different contexts, do not optimize the decision-making process in the same way as analyzing control costs and benefits does. Knowing which risks can be transferred or contemplating the changes in the risk environment are important considerations, but they do not provide the same level of detailed insight into the financial implications of risk responses. Similarly, assessing the likelihood and impact of various risk scenarios is crucial for understanding risk exposure but does not directly translate into the selection of the most cost-effective risk response.