Question

There are two major types of risk management tools, namely, risk control and risk financing. Discuss the details of these tools with examples.

Answer 1

Risk control refers to practices & strategies that seek to avoid, prevent, reduce or control the frequency & measure of risk while risk financing refers to the techniques that provide for the funding of risks.

Risk Control — a synonym for loss control. The technique of minimizing the frequency or severity of losses with training, safety, and security measures.

When it comes to risk control the first step is definitely the assessment of assets of the company. The company/firm then chalks out the best methods to control the losses. They do accept the task but the aim is to minimize it as much as possible.

Since it’s very difficult to avoid it, loss prevention is the best solution. In case of a threat the loss prevention strategies help to accommodate the risk effectively and minimize the damage as much as possible. One of the strategies for risk control is Insurance, a third party is appointed to balance the losses under a contract.example of risk control is a validation of the system wherein human error is reduced in financial trading

Risk Financing — achievement of the least-cost coverage of an organization's loss exposures, while ensuring post-loss financial resource availability. The risk financing process consists of five steps: identifying and analyzing exposures, analyzing alternative risk financing techniques, selecting the best risk financing technique(s), implementing the selected technique(s), and monitoring the selected technique(s). Risk financing programs can involve insurance rating plans, such as retrospective rating, self-insurance programs, or captive insurers.