Question

Which risk management alternative is feasible when the likelihood of an event that could cause a financial loss is very low and the potential financial loss due to the event is small?

A) Avoid risk
B) Reduce risk
C) Accept risk
D) Insure against risk

Answer 1

For low-probability, low-impact financial loss events, the viable risk management option is to accept the risk. This decision is made when the costs of prevention or insurance are not justified by the low level of risk.

Step-by-step explanation:

When the likelihood of a financial loss occurring is very low and the potential financial loss is small, the risk management alternative that is feasible is C) Accept risk. This approach involves recognizing the risk but deciding that the cost of preventing it or insuring against it outweighs the benefits because the risk is minimal. Accepting the risk means no immediate action is taken to mitigate or transfer the risk, unlike using insurance or other risk management strategies where financial or effort investments are required ahead of the event.