Final answer:
The main objective of risk management is to reduce risks to a level that an organization can accept. This involves identifying, evaluating, and mitigating risks to prevent potential adverse events, similar to the way individuals buy insurance for low-probability, high-impact events.
Step-by-step explanation:
The main objective of risk management in an organization is to reduce risks to an acceptable level. This means identifying potential risks, evaluating their likelihood and impact, and then taking steps to mitigate or eliminate those risks. In the case of the question, the correct answer would be (C) the organization will accept. This aligns with the concept that organizations aim to bring risk down to a level where they can tolerate or 'accept' it, balancing the cost of mitigation against the severity and likelihood of the risk itself.
The use of terms such as Annual Rate of Occurrence (ARO) and Single Loss Expectancy (SLE) are methods of quantifying risks in financial terms. The ARO represents how often a specific risk is expected to occur within a year, while the SLE quantifies the monetary loss each time that risk occurs. However, in practice, an organization seeks to reduce risks to an acceptable level rather than a specific mathematical relationship between ARO and SLE.
Just as individuals purchase insurance for comparatively rare but high-impact potential events, organizations engage in risk management to prepare for and mitigate the effects of potential adverse events. In essence, the practice of risk management is similar to buying insurance—it's a way to handle low-probability, high-consequence events effectively.