Question

Risk avoidance is an appropriate strategy when the potential losses seriously outweigh the likely benefits. What factors should be considered on the cost and benefit sides of the analysis? At what point should a business decide to discontinue an activity rather than try to manage the risk involved? What is one clear example of risk avoidance?

Answer 1

Surely risk avoidance is an appropriate strategy when the potential losses seriously out weigh the likely benefits.

The factors like

1. Analyzing all cost types like labor involves in process, materials used in productions, other expenses to complete the work , electricity, rent, utilities.

2. Analyze potential risks and impacts even when the project benefits outweigh the cost it is essential to identify Analyze and weight any risk.

3. Evaluate the cost benefits analysis are consider

At the point when handing risk is way more risky and one wrong decision take you to danger and it will highly impact on your business then discontinue the activity of project is more wiser decision.

Example of risk avoidance   

Suppose an investor wants to buy stocks in an oil company but oil prices have been falling significantly over the past few months. There is political risk associated with the production of oil and credit risk associated with the oil company. He assesses the risk associated with the oil industry and decided to avoid taking a stock in company. This is a known as risk avoidance.