An application of training and education is a technique of risk and control strategy
What Is Risk Control?Risk control is the set of methods by which firms evaluate potential losses and take action to reduce or eliminate such threats. It is a technique that utilizes findings from risk assessments, which involve identifying potential risk factors in a company's operations, such as technical and non-technical aspects of the business, financial policies and other issues that may affect the well-being of the firm. Show
Risk control also implements proactive changes to reduce risk in these areas. Risk control thus helps companies limit lost assets and income. Risk control is a key component of a company's enterprise risk management (ERM) protocol. How Risk Control WorksModern businesses face a diverse collection of obstacles, competitors, and potential dangers. Risk control is a plan-based business strategy that aims to identify, assess, and prepare for any dangers, hazards, and other potentials for disaster—both physical and figurative—that may interfere with an organization's operations and objectives. The core concepts of risk control include:
No one risk control technique will be a golden bullet to keep a company free from potential harm. In practice, these techniques are used in tandem with one another to varying degree and change as the corporation grows, as the economy changes, and as the competitive landscape shifts. Key Takeaways
Example of Risk ControlAs part of Sumitomo Electric’s risk management efforts, the company developed business continuity plans (BCPs) in fiscal 2008 as a means of ensuring that core business activities could continue in the event of a disaster. The BCPs played a role in responding to issues caused by the Great East Japan earthquake that occurred in March 2011. Because the quake caused massive damage on an unprecedented scale, far surpassing the damage assumed in the BCPs, some areas of the plans did not reach their goals. Based on lessons learned from the company’s response to the earthquake, executives continue promoting practical drills and training programs, confirming the effectiveness of the plans and improving them as needed. In addition, Sumitomo continues setting up a system for coping with risks such as outbreaks of infectious diseases, including the pandemic influenza virus. What is risk avoidance?Risk avoidance is the elimination of hazards, activities and exposures that can negatively affect an organization and its assets. Whereas risk management aims to control the damages and financial consequences of threatening events, risk avoidance seeks to avoid compromising events entirely. While the complete elimination of all risk is rarely possible, a risk avoidance strategy is designed to deflect as many threats as possible in order to avoid the costly and disruptive consequences of a damaging event. Risk avoidance is a specific type of approach to managing risk, requiring a methodical process. Leaders must identify and assess the risks their organization faces and determine how they will eliminate the chances of those risks causing damage to the organization. Because risk avoidance is a deliberate tactic, it is not the same as failing to identify a risk or ignoring it altogether. How does risk avoidance fit into a risk management strategy?Risk management is an organizational practice that begins with the following three steps:
Organizations face many different risks; some risks have the potential to cause significant, widespread harm to an organization, while others could cause only limited damage. There are four main risk management strategies, or risk treatment options, that organizational leaders can take to deal with the variety of identified risks:
Each of these four approaches has benefits and drawbacks, as well as challenges and costs, associated with designing, implementing and operationalizing them. Executives typically weigh the likelihood and negative impact of an identified risk against the respective benefits, drawbacks and costs of the four risk management options listed above. Consequently, executives choose different options to address different risks, and their risk management plan may, in fact, include the use of all four options. How does risk avoidance differ from risk reduction and other risk management techniques?Risk avoidance is the only risk management strategy that seeks to completely eliminate the chance of a particular risk from happening and/or its ability to impact the organization to any degree. Organizational leaders typically decide on risk avoidance when the risk itself has the potential to inflict catastrophic damage to the organization and/or the costs of mitigating the risk are higher than the benefits of doing so. To avoid a risk, enterprise executives must design and implement policies, procedures, technology and employee training that support that objective.
Contrast that with the approach executives take when they decide to accept a risk. Executives typically opt for risk acceptance when the risk's potential to harm the organization is extremely limited and/or the cost of mitigating the risk exceeds the financial impact it can cause. With risk acceptance, executives take no specific action other than follow existing practices to address the risk. Executives take a more moderate approach when pursuing either a risk reduction or a risk transfer strategy. In a risk reduction strategy, executives implement policies, procedures, technology and training aimed at reducing the likelihood and/or impact of a risk. What remains after the reduction controls are in place, or residual risk, is at an acceptable level. A risk transfer strategy follows similar steps; however, under a risk transfer strategy, a third party is paid to bear some or all of the costs and consequences if the risk causes harm or damage -- and if it doesn't. What are examples of risk avoidance?Examples of risk avoidance can be found across industries:
The principle of risk avoidance also applies to individual risk. Investors, for instance, could avoid all risk of losing any of their capital value by placing all assets in a federally guaranteed savings account instead of buying stocks, whose values would likely fluctuate. What are the pros and cons of risk avoidance?Like all risk mitigation strategies, the decision to avoid risk has benefits and drawbacks. The pros and cons of a risk avoidance strategy include the following:
For instance, the investors who opt for a savings account do indeed avoid all risk of losing their capital value but will also miss out on growing those assets more significantly by avoiding the risk associated with the stock market. Or take the retailer that decides against keeping consumer data: It eliminated the risk of running afoul of data regulations, but at the same time, it likely drastically limited its ability to create a personalized shopping experience that could help boost sales. This was last updated in October 2021 Continue Reading About risk avoidance
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What are the four risk control strategies?There are four main risk management strategies, or risk treatment options:. Risk acceptance.. Risk transference.. Risk avoidance.. Risk reduction.. Which of the following is an example of risk control?Risk control methods include avoidance, loss prevention, loss reduction, separation, duplication, and diversification.
Which risk treatment strategy approach can also be referred to as an avoidance strategy?The risk control strategy that attempts to eliminate or reduce any remaining uncontrolled risk through the application of additional controls and safeguards is the protect risk control strategy, also known as the avoidance strategy.
What are the three common approaches to implement the defense risk treatment strategy?What are the three common approaches to implement the defense risk control strategy? Answer: The three common approaches are the application of policy, the application of training and education, and the implementation of technology.
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