Types of Risk Management Strategies

Specializing in business and technology, New Jersey resident Rao Chalasani worked at Bank of America (BofA) in New York, NY, in the capacities of director of trading in risk management and business, and chief technology officer (CTO). At BofA, Rao Chalasani’s responsibilities comprised developing and implementing a company-wide risk management platform.

Risk management is a wheel with many spokes. Depending on a company’s goals and needs, risk management experts may invoke strategies such as risk acceptance, risk avoidance, and risk transference. Risk acceptance does not involve any mitigation; companies choose this option when they do not want, or do not have, resources to spend on implementing other strategies. They accept the risks and forge ahead, hoping that achieving success proves worthwhile.

Risk avoidance lies at the opposite end of the spectrum. Rather than brace for impact, companies spend resources on any and all actions that can mitigate risks. As a result, risk avoidance is usually the most expensive risk management strategy.

Falling somewhere in between risk acceptance and risk avoidance, risk transference involves the responsibility and ramifications of a given risk being handed to a willing third party. Examples include outsourcing operations such as customer service to other businesses, rather than handling it in-house. Risk transference works best for companies willing to admit that a particular operation is not its forte, and should be handled by more knowledgeable parties.

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