Controlling and

Managing Risks
BAC 4201 PROFESSIONAL ACCOUNTANT
MOHD HANIFF ZAINULDIN

4 ways to respond to risks

Reduce (treat) the risk: Take some action, e.g. selfinsurance to deal with frequency of losses.
Transfer the risk: Best example is insurance, where
the risk of something going wrong has been
transferred.
Avoid (terminate) the risk: Companies take
immediate action to reduce severity and frequency
of losses, e.g., charging higher prices to customers
or ultimately abandoning activities.
Accept (tolerate) the risk. These risks are not
significant. Keep under view, but costs of dealing
with risks is unlikely to be worth the benefits.

Risk reduction
Treat the risk
Often risks can be avoided, but not avoided all
together.
This is true of many business risks, where the risks
of launching a new product can be reduced by
market research, advertising, etc.

Risk transference
Risk transference does not reduce the amount of
total risk in total. It simply moves it to another
person, such as an insurance company.
Risks can be transferred to other internal
departments, or externally to suppliers, customers,
or insurers. Example transfer risk to customer?
Internal risk transfer can also cause problems if it is
away from departments with more clout (e.g.
sales) and towards departments such as finance
who may be presumed to downplay risks
excessively