Risk Avoidance

What Does Risk Avoidance Mean?

Risk avoidance is an area of risk management where the goal is to eliminate risk and not just reduce it. Rather than mitigating existing risk, it aims to eliminate the source of the risk altogether, sometimes replacing it with a smaller, more easily manageable risk.

Risk avoidance often means the elimination of hazards or activities that can increase the chance of a loss or claim. There are a number of ways risk avoidance can be implemented, including risk strategies where the organization either chooses to not engage in an operation or chooses to shut down an operation because of the risk. If a workplace has outdated equipment that exposes workers to risks, they may use risk management vs risk avoidance strategy. This would include ensuring there are safe work procedures and providing protective equipment to the workers.

This differs from a risk avoidance strategy, which would eliminate the risk by removing the equipment and replacing it with a safe alternative. Risk avoidance is one of many risk strategies that can be used in an overall risk management plan that works to protect the organization's assets from losses. These assets could be in the form of equipment, employees, clients or other vital parts of the business.

Insuranceopedia Explains Risk Avoidance

When it comes to business growth as an example, the risk avoidance strategy is not always the best option.

Risk is avoided when the organization refuses to accept it, which means the risk is not permitted to come into existence. This is accomplished by simply not engaging in the action that gives rise to risk. For instance here are a few risk avoidance scenarios that a business may encounter.

Examples of this in everyday life would be:

  • You do not want to risk losing your savings in a hazardous venture, so you pick one where there is less risk.
  • You want to avoid the risks associated with the ownership of property, so you do not purchase property but lease or rent instead.
  • You discover the use of a particular product is hazardous, then do not manufacture or sell it.

These are examples of negative rather than positive techniques. For business, it is sometimes an unsatisfactory approach to dealing with many risks. If risk avoidance were used extensively, the business would be deprived of many opportunities for profit and probably would not be able to achieve its objectives.

A soap manufacturer, for instance, could cease using harmful chemicals like parabens and use a safer, organic alternative to protect their workers and their consumers, at the cost of not having enough funding to produce the new soap.

This risk avoidance approach would be detrimental to this business and would stop this business from even getting off the ground. The risks must be balanced and managed, but avoiding them completely is often unfeasible.

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