Ways To Handle Risks
Risk is a burden not only to the individual but to society as well. And the need to minimize the same is not highly desirable for both. There are several ways one can meet a risk viz. Risk Avoidance, Risk Retention, Risk Transfer, Loss Control and Insurance. Now these methods can be further discussed.
Risk Avoidance; It is one method of handling risk by not activating the very source which might trigger its materialization. For example a person may decide to remain a bachelor not to ever court the risk of a divorce! But in our objective world, it may not be practical to think of it as pragmatic means to handle a risk. All we take risks in our daily lives and based on our perception of it, we endevour to guard against them and succeed in either completely avoiding them or minimizing their negative and harmful impact.
Risk Retention: A risk may be retained by a person either in part or in full. The retention can either take an active or passive form. In a case of active risk retention an individual may so decide to retain all or part of a risk the magnitude of which is very clear to him. A business organization may retain the risk of petty thefts by employees. Retention of a risk can take a passive form also. Certain risks may unknowingly retained because of ignorance, indifference or callousness and these types of passive retention is fraught with all kind of dangers.
Risk retention can be an extremely useful technique for handling risk in a modern corporate risk management programme. Risk retention, however, is appropriate for high frequency and low severity risks where potential losses are relatively small.
Risk Transfer: Risk tranfer is another technique for handling risks which may be judiciously employed to guard against a risk. It may take the form of a contract, for example, one can execute a service agreement with the retailer of computer on a periodic basis. Similarly hedging techniques are widely used to take fluctuations in the prices of stocks and commodities.
Loss Control: Loss control is another way to handle a risk. It can be in the form of prevention and reduction. The first one mainly aims at reducing the probability of loss so that the frequency of losses is reduced. For example one prevent the explosion of a boiler by ensuring regular maintenance. However cautious and careful one might be in life, some losses are inevitable and some control measures towards the reduction of their severity. For instance a plant can be constructed with fire resistant materials.
Insurance:Insurance is considered to be the most pragmatic method for handling a major risk. The concept of insurance is in essence related to the protection of the economic value of assets or human beings. The presence of both life insurance as well as general insurance companies is found in every country to cater to the needs of risk management in relation to both life and non-life risks.
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