Three ways to mitigate risk

Though the risk could be mitigated or reduced to an extent through some techniques. Here are the three ways that will trim down the exposure of an individual to risk.

Oct 22, 2014 11:10 IST India Infoline News Service

Every individual is exposed to risk in some or the other form. Complete elimination of risk from a person's life is certainly impossible. Though the risk could be mitigated or reduced to an extent through some techniques. Here are the three ways that will trim down the exposure of an individual to risk.
 
Risk Acceptance: Risk acceptance is a strategy used by individuals and businesses, when the occurrence of risk has less probability. At the same time, the expenses associated with protecting against such risks are not financially viable for an individual or business. In this scenario, the individual or business accepts to cover the risk themselves if the event occurs. For example, a person might not take a home insurance cover against natural disasters as he feels that there is less likelihood of such event. This means that he is prepared to take risks if any natural disaster occurs.
 
Risk Avoidance: Those who could not assume risk can completely avoid the risk. For example, a person could stay away from stock markets in order to avoid the risk of losing money. However, such decision could hamper his financial goals due to factors that emerge for not participating in equities. However, in practical application, risk avoidance will reduce risk, but not eliminate it in totality.
 
Transfer of risk: A person can transfer his/her risk to a third party, which is willing to assume such risks. Buying insurance covers is one of the common example of transfer of risk, where insurance companies take the liability to reinstate the insured. A person will have to pay costs in the form of insurance premium to avail transfer of risk.
 
In a similar way, a company can transfer its risk by outsourcing certain functions to those companies that hold expertise in the field. Customer service, operations and software management are some of the functions that a company could outsource to eliminate risk from their core business.

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