Risk reduction is an action or inaction designed to decrease the potential for future losses. This includes strategies to reduce the probability of a risk occurring and strategies to reduce the impact if a risk does occur. Generally speaking, there are four ways to reduce risk:
Risk AvoidanceAvoiding an activity or position that may cause risk. For example, a business may decide that a new product strategy is too risky to pursue.
Risk MitigationPursuing an activity but finding ways to reduce its associated risks. For example, an amusement park can mitigate safety risks by eliminating latent human error in their maintenance procedures.
Risk TransferPaying to transfer risks to an insurance company or business partner.
Risk SharingFinding ways to reduce risks by pooling resources with others. For example, a group of companies may reduce the risk of losing key executives by planning to transfer resources on a temporary basis in the case of an unexpected loss. Next: Risk Mitigation
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