Basic Risk Management Techniques

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Risk Management: is defined as the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to reduce/curb the risk.

Risk Management Techniques

Risk Avoidance: Risk avoidance is when someone eliminates risk by not taking any action that involves risk.

An example being if a store owner decides to not open a new location due to the risks of lawsuits, the risk of theft, and unreliable employees.

Risk Reduction: Risk Reduction or Risk Mitigation is when someone takes measures to reduce the risk involved in an action.

An example being if a store owner decides to open a new location but decides to rent the building as well as installing a state of the art alarm system and pre-employment drug testing.

Risk Transference: Risk Transference is when one party transfers the management of a severe risk to another party.

The prime example of this is insurance, when someone purchases insurance they are TRANSFERING the risk of catastrophic loss to another party.

Risk Retention: Risk Retention is when someone acknowledges risks and is prepared to handle any unexpected losses that may occur as a result of that risk.

An example of this would be if a store owner retains the risk of damage by deciding not to purchase comprehensive coverage on their fleet of vehicles.