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7 Types of Risk Treatment

 , updated on May 19, 2021
A risk treatment is an action that is taken to manage a risk. Risk management processes all include steps to identify, assesses and then treat risks. In general, there are four types of risk treatment:

1. Avoidance

You can choose not to take on the risk by avoiding the actions that cause the risk. For example, if you feel that swimming is too dangerous you can avoid the risk by not swimming.

2. Reduction

You can take mitigation actions that reduce the risk. For example, wearing a life jacket when you swim.

3. Transfer

You can transfer all or part of the risk to a third party. The two main types of transfer are insurance and outsourcing. For example, a company may choose to transfer a collection of project risks by outsourcing the project.

4. Acceptance

Risk acceptance, also known as risk retention, is choosing to face a risk. In general, it is impossible to profit in business or enjoy an active life without choosing to take on risk. For example, an investor may accept the risk that a company will go bankrupt when they purchase its bonds.

5. Sharing

Risk sharing is the distribution of risk to multiple organizations or individuals. This is done for a variety of reasons including insurance products and self-insurance strategies.

Residual Risk

Risk treatments don't necessarily reduce risks to zero. Remaining risk after treatment is known as residual risk.

Secondary Risk

It's common for your efforts to reduce risk to have risks of their own. These are known as secondary risks. For example, if you outsource a project you will assume a number of secondary risks such as the risk that the outsourcing company will fail to deliver.

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