Which of the following is NOT one of the basic techniques used to manage risk?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
The basic risk-management techniques are avoidance, retention, sharing, reduction, and transfer. Avoidance eliminates the risk by not engaging in the activity; retention means accepting and funding the risk oneself; sharing spreads losses across a pool of similarly exposed parties; reduction lowers the frequency or severity of losses; and transfer shifts the financial consequence to another party, with insurance being the most common form. A guarantee is not a recognized risk-management technique because no one can promise that a loss will not occur. Businesses and individuals routinely combine these tools, for example retaining a deductible while transferring catastrophic exposures to an insurer.
Why the other options are wrong
- A) Avoidance is eliminating a risk entirely by refusing to engage in the activity, such as choosing not to operate a motorcycle, so it is a valid technique.
- B) Retention means accepting and funding the risk oneself, such as self-insuring a deductible, so it is a recognized technique.
- D) Transfer shifts the financial consequence of a loss to another party, typically an insurer, so it is a core risk-management technique.
Memory hook
Four real moves: Avoid, Retain, Share, Transfer. There is no 'guarantee' card in the risk-management deck.