Question

There are several techniques available for managing risk. For each of the following risks and risk-control methods, give an example of how the method can be implemented.
a. Avoidance: the risk of sinking (by human).
b. Loss prevention: the risk of family head’s premature
death because of a heart attack.
c. Lossreduction(ingeneral):theriskofburningacar
because of fire.
d. Loss reduction (by duplication): the risk of losing
accounting documentation.
e. Loss reduction (by separation): the risk of losing all
money by pickpockets during a vacation.
f. Loss reduction (by diversification): the risk of our bankruptcy b

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Abdul-Rahim Taysir

Answer 1

a. Avoidance: the risk of sinking (by human).

avoidance: the firm could stop manufacturing certain ladders and scaffolds that might result in a products lawsuit

an investor wants to buy stock in an oil company, but oil prices have been sinking 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 risks associated with the oil industry and decides to avoid taking a stake in the company. This is known as risk avoidance.

b.Loss prevention: the risk of family head’s premature death because of a heart attack.

Loss control can reduce the chance of dying prematurely from a heart attack, such as exercise, losing weight, and following a healthy diet. Life insurance can also be used, which reduces or eliminates the financial consequences to surviving family members if a family head dies prematurely.

c.Loss reduction(ingeneral):the risk of burningacar because of fire.

Collision insurance on the new car is an effective way to deal with this exposure. Retention can also be used by purchasing the policy with a deductible for car burn losses. The insured can also drive defensively, which is a form of loss control.

d Loss reduction (by duplication): the risk of losing accounting documentation.

Duplication involves creating a backup plan, often by using technology. For example, because of risk of losing accounting documentation it would stop a company’s operations, a backup doscumentation is readily available in case the primary documents are lost.

e.loss reduction (by separation): the risk of losing all money by pickpockets during a vacation.

Separation involves dispersing key assets so that catastrophic events at one location affect the business only at that location. If all assets were in the same place, the business would face more serious issues. For example, a person on vacation should keep his money in different places to prevent losses of losing money are pickpockets (some money in hotel room , some in phone e-wallets , some cash in hand cheques and balances , bills etc)

f. Loss reduction (by diversification): the risk of our bankruptcy

Diversification allocates business resources for creating multiple lines of business offering a variety of products or services in different industries. A significant revenue loss from one line will not result in irreparable harm to the company’s bottom line. For example, instead of relying on sigle source of income or single product line diversify yourself to variety of sources to have benefits of diversification