response to the following with 200 words, APA style:
- Transfer Risk – Hurricane damages infrastructure beyond repair – rationale for transfer of risk (i.e. purchasing insurance) is to have a means to rebuild and restore.
- Terminate Risk – Employee violating policy resulting in increased financial liability (i.e. embezzlement) – rationale is to eliminate the risk that is identifiable, future risk associated with the actions of this individual is eliminated, has a potential to affect the overall operation and ability to continue operations, and situation likely to improve if terminated versus implementing corrective action measures.
- Tolerate Risk – Security fence down due to power outage – rationale is a power outage will not deem the fence completely inoperable, but contingency plan will be required until full operation is restored. The time to restore will likely be minimal and/or contingency plan is sufficient to sustain for a significant amount of time.
- Treat Risk – Repaving cracked and uneven walkways in high traffic areas – rationale for repaving areas prone to increase falls/accidents is a way of minimizing the potential for risks and is cost efficient versus the potential liability.
Expert Solution Preview
Risk management is a crucial aspect of any organization or individual’s decision-making process. It involves identifying, assessing, and prioritizing risks, as well as implementing strategies to manage and mitigate them. In the context of the given scenarios, four different approaches to risk management have been identified: transferring risk, terminating risk, tolerating risk, and treating risk. This response will discuss each approach and provide a rationale for its adoption in the respective situations.
1. Transfer Risk – Hurricane damages infrastructure beyond repair:
In this scenario, the rationale for transferring the risk, such as purchasing insurance, is to have a means to rebuild and restore the damaged infrastructure. Hurricanes can cause extensive and irreversible damage, which may exceed an organization’s financial capacity to recover. By transferring the risk to an insurance provider, the organization can avoid the potentially overwhelming costs associated with rebuilding. Insurance coverage ensures financial support for the restoration process, thereby enabling the organization to resume operations efficiently. Through risk transfer, the burden of the hurricane’s impact is shared with the insurance company, providing a safety net and promoting long-term sustainability.
2. Terminate Risk – Employee violating policy resulting in increased financial liability:
When an employee engages in actions, such as embezzlement, that result in increased financial liability, terminating the risk becomes necessary. The rationale behind this approach is to eliminate the risk that is identifiable and associated with the employee’s actions. By terminating the employee, the organization reduces the chance of future risks and potential financial losses. Continuation of the employee’s actions may further damage the organization’s overall operation and ability to sustain itself. By taking decisive action to eliminate the risk through termination, the organization can restore its credibility, minimize financial liabilities, and prevent potential legal consequences.
3. Tolerate Risk – Security fence down due to power outage:
In cases where a security fence is temporarily inoperable due to a power outage, tolerating the risk is an appropriate strategy. The rationale behind this approach is that a power outage will not render the fence completely useless. While it may compromise security temporarily, a contingency plan can be put in place until full operation is restored. The time required to restore power is typically minimal or can be sustained by the contingency plan for a significant amount of time. By tolerating this risk, the organization can ensure that security is maintained, albeit temporarily, without incurring significant costs or disruptions to operations.
4. Treat Risk – Repaving cracked and uneven walkways in high traffic areas:
The rationale behind treating the risk by repaving cracked and uneven walkways in high traffic areas is to minimize the potential for accidents and liability. These walkways pose an increased risk of falls and accidents. By undertaking the cost-efficient measure of repaving these areas, an organization can reduce the likelihood of injuries and potential liability claims. Treating the risk in this manner demonstrates a proactive approach to risk management, ensuring the safety of individuals and preventing costly legal actions. The investment in repairing the walkways is outweighed by the potential costs and negative consequences of not addressing the risk adequately.
In conclusion, the four approaches to risk management discussed above provide valuable strategies for different scenarios. Transfer, termination, tolerance, and treatment of risks allow organizations to make well-informed decisions, mitigate potential harm or liability, and ensure the overall continuity and sustainability of operations. By considering these approaches, organizations can effectively manage risks and protect their interests.