Which risk treatment strategy involves making up for potential losses through an external party?

Which risk treatment strategy involves making up for potential losses through an external party?

• A. Acceptance
• B. Elimination
• C. Transfer
• D. Mitigation

Answer: (C)

The risk treatment strategy that involves making up for potential losses through an external party is transfer. This approach allows an organization to shift the financial burden of a risk to an outside entity, which can take the form of insurance, outsourcing, or other contractual agreements. By transferring the risk, the organization can manage its exposure and reduce the potential impact on its resources. Transfer is an effective strategy when the cost of potential losses is significant, and the organization prefers not to bear that risk alone. Through insurance, for example, a company can ensure that it will receive compensation in case of a covered event, thus mitigating the financial impact of the risk. In contrast, acceptance means acknowledging the risk and deciding to bear the consequences if it materializes without seeking external help. Elimination refers to the strategy of completely removing the risk by avoiding the activity that causes it. Mitigation involves taking steps to reduce the likelihood or impact of a risk, but does not specifically involve external parties assuming that risk. Therefore, transfer is the correct strategy when discussing the involvement of external parties in compensating for potential losses.

The risk treatment strategy that involves making up for potential losses through an external party is transfer. This approach allows an organization to shift the financial burden of a risk to an outside entity, which can take the form of insurance, outsourcing, or other contractual agreements. By transferring the risk, the organization can manage its exposure and reduce the potential impact on its resources.

Transfer is an effective strategy when the cost of potential losses is significant, and the organization prefers not to bear that risk alone. Through insurance, for example, a company can ensure that it will receive compensation in case of a covered event, thus mitigating the financial impact of the risk.

In contrast, acceptance means acknowledging the risk and deciding to bear the consequences if it materializes without seeking external help. Elimination refers to the strategy of completely removing the risk by avoiding the activity that causes it. Mitigation involves taking steps to reduce the likelihood or impact of a risk, but does not specifically involve external parties assuming that risk. Therefore, transfer is the correct strategy when discussing the involvement of external parties in compensating for potential losses.