Question

With respect to risk response strategies, which of the following would be a “risk sharing” approach?

XYZ company enters the market as a provider of car insurance to high credit risk clients; however, they diversify their portfolio by targeting 40% of their marketing efforts to traditional “safe credit” customers.

LGW Communications employs a series of manual and automated controls to manage inventory shrinkage (inventory going missing due to damage or theft) in an effort to keep inventory costs in line with industry standards.

JLW Industries is a holding company with a division that specializes in high-risk offshore oil drilling. Given the recent Gulf oil spill and vicious backlash from consumers and politicians, JLW decides to divest itself of the oil drilling division.

XYZ company is concerned that they do not have the capability to bring a new product to market, so they enter into a joint venture with ABC company; XYZ will handle design and marketing of the new product, while ABC will handle manufacturing and logistics.

Answer 1

XYZ company enters the market as a provider of car insurance to high credit risk clients; however, they diversify their portfolio by targeting 40% of their marketing efforts to traditional “safe credit” customers:

This is risk avoidance strategy

LGW Communications employs a series of manual and automated controls to manage inventory shrinkage (inventory going missing due to damage or theft) in an effort to keep inventory costs in line with industry standard

This is risk mitigation strategy

JLW Industries is a holding company with a division that specializes in high-risk offshore oil drilling. Given the recent Gulf oil spill and vicious backlash from consumers and politicians, JLW decides to divest itself of the oil drilling division.

This is risk TRANSFER strategy

XYZ company is concerned that they do not have the capability to bring a new product to market, so they enter into a joint venture with ABC company; XYZ will handle design and marketing of the new product, while ABC will handle manufacturing and logistics.

This is risk SHARING strategy