What is the difference between Risk Acceptance and Risk Avoidance?

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Risk Acceptance

Risk acceptance is also known as risk retention. It is simply accepting the recognized risk without taking any measures to avoid loss or the probability of the risk happening. It includes a decision by management to accept a given risk without more mitigation or transfer, for a period of time.

This appears in two classes of circumstances. For risks that are too low to bother protecting against or for which insurance and due diligence are enough, risk is accepted. For risks that are to be mitigated but where mitigation cannot be completed instantaneously or for which rapid mitigation is too high-priced to warrant, risks are accepted for periods during which mitigation is undertaken.

This method is conceptual for those risks that will not make a high amount of loss if they occur. These risks in fact would be treated more costly to handle than to allow.

Risk acceptance denotes that the organization is willing to accept the level of risk related to a given activity or process. Generally, but not always, this defines that the result of the risk assessment is within tolerance.

There may be times when the risk level is not inside tolerance, but the organization will still select to accept the risk because some other alternatives are unacceptable. Exceptions should continually be brought to the attention of management and authorized by the executive administration or the Board of Directors.

Risk Avoidance

Risk Avoidance is a risk approach where the organization either select to not engage in an operation, or chooses to shut down an operation because of the risk contained. For example, a company can choose to shut down or not work a branch in a high risk location to prevent the risks involved.

An example of risk mitigation would be a company deciding that a network can fail or become over utilized and deploying a cloud-based solution which would support redundancy and scalability.

Risk avoidance is a method for businesses to decrease their level of risk by not engaging in certain high-risk activities. Risk avoidance define running the company in a way that eliminates certain hazards and exposures that can result in an expensive lawsuit or a financial loss.

Risk avoidance is exactly as it sounds. It is a business approach in which specific classes of activities or business processes are not undertaken because the risks are too high to justify the return on investment.

A risk can be avoided by not accepting or entering into the event which has hazards. This approach has severe disadvantages because such a choice is not always possible, or if possible, it can require giving up some important advantages. However, in some situations risk avoidance is both possible and desirable.

Updated on 10-Mar-2022 07:42:53