Question

There are many benefits of risk management for a business. Without risk management, senior management might be reluctant to undertake activities deemed too risky, depriving the business of potential benefits. This benefit of risk management is:

A. Reduction of deterrence effects of hazard risk.
B. Reduction of residual uncertainty.
C. Reduction of diversifiable risk.
D. Reduction of hazard risk.

Answer 1

The benefit of risk management that reduces senior management's reluctance to undertake risky but potentially beneficial activities is the Reduction of deterrence effects of hazard risk. It involves identifying and managing potential risks to make informed decisions and encourage business growth.

Step-by-step explanation:

The benefit of risk management for a business that you are referring to is the Reduction of deterrence effects of hazard risk. This aspect of risk management encourages senior management to undertake activities that may seem too risky without proper risk assessments and mitigation strategies.

By identifying, evaluating, and implementing plans to manage risks, businesses can reduce the reluctance to engage in potentially beneficial ventures, while being prepared to face any adverse consequences that might arise. For instance, companies routinely purchase insurance as a risk management practice to protect against low-probability but high-consequence events.

This not only provides peace of mind but also reduces the financial impact should such events occur. Moreover, insurance companies may offer businesses lower rates if they install recommended security and fire systems, demonstrating how risk mitigation actions can directly contribute to cost savings and improved operations.