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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

A Pune-based startup making smart water meters depends on a single overseas supplier for its sensor chip. The founders sign a second supply agreement with another vendor so that a failure at one source does not halt production. Which risk treatment does this best illustrate?

This is risk reduction through supplier diversification. By adding a second vendor, the startup lessens its dependence on one source and limits the effect of a supply failure, without abandoning the product, accepting the whole loss itself, or shifting the loss to an insurer.

  1. ARisk avoidance by dropping the product
  2. BRisk retention through self-funding
  3. CRisk reduction through diversification of suppliersCorrect
  4. DRisk transfer through a life insurance policy

Explanation

Adding a second vendor lowers the chance and impact of a supply disruption, which is risk reduction by diversifying the source. Avoidance would mean abandoning the activity altogether. Retention means accepting the risk, and insurance transfers loss, neither of which is done here.

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