Question

1. EXPLAIN THE CONCEPT OF RISK AVOIDANCE AND PROVIDE AN EXAMPLE.
2. EXPLAIN THE CONCEPT OF RISK MITIGATION AND PROVIDE AN EXAMPLE.
3. LIST 4 RISK MEASURING TOOLS AND EXPLAIN WHAT THEY MEASURE.
4. DESCRIBE IN DETAIL HOW INSURANCE WORKS.

Answer 1

EXPLAIN THE CONCEPT OF RISK AVOIDANCE AND PROVIDE AN EXAMPLE.

Risk avoidance is possibly taking care of all events or activities that are a potential risk for the organization / individual. E.g. it happens in business continuity or disaster recovery planning where organization data is backed up at center in a remote location. This help in the fast recovery in case of any hazards that wipe of data in organization. This is a prevention technique and is highly expensive.

EXPLAIN THE CONCEPT OF RISK MITIGATION AND PROVIDE AN EXAMPLE.

Risk mitigation means that the business accepts certain level of risk that cannot be avoided and will hamper the business functions, thus after recognizing it; steps are taken for dealing with it like purchasing insurance. The risk mitigation areas are prioritized according to its criticality to business and impact.

It is the last step in risk management process after studying impacts of risk on organization. It is used basically in disaster recovery planning involving steps to combat risk to data centers including cybercrimes, weather hazards etc.

LIST 4 RISK MEASURING TOOLS AND EXPLAIN WHAT THEY MEASURE.

• Maximum probable loss: It quantifies the maximum loss that a company may suffer due to happening of an event and the probability of happening of the event.
• Value-at-risk: It estimates the risk to a business asset in various scenarios.
• Frequency of Loss: It measure how many times the company face such losses in given time period. The past data of the calculation can be used to predict the future frequency of loss.
• Scenario Analysis: The risk of business in happening of various scenarios in future is measured. For e.g. hike in the interest rate can raise the burden of bank loan interest to a company. It may even face default risk if has liquidity issues.

DESCRIBE IN DETAIL HOW INSURANCE WORKS.

Insurance is the transfer of risk from any organization / individual to insurance company. In the happening of the covered event the insurance company pays the organization / individual for his resultant financial loss. There are various types of policies giving protection in happening of fire, crime/ robbery etc. Its premium is determined on the probability of happening of event and the magnitude of loss.