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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

A Pune-based startup selling organic snacks stores all its inventory in a single rented warehouse and has no fire or stock cover. Which risk response would be the most direct way to deal with the financial loss from a possible warehouse fire?

Risk transfer through a fire and stock insurance policy is the most direct response. The insurer bears the financial loss from a warehouse fire in return for a premium, while the startup keeps operating. Avoidance would close the business, and acceptance would leave the entire loss with the founders.

  1. ARisk avoidance by shutting the snack business
  2. BRisk transfer by buying a fire and stock insurance policyCorrect
  3. CRisk acceptance by ignoring the exposure
  4. DRisk retention by keeping a sales target higher

Explanation

Insurance shifts the financial consequence of a low-probability, high-impact event such as fire to an insurer for a premium. Avoidance would end the business itself, which is disproportionate. Acceptance or retention leaves the full loss with the founder, so it does not address the exposure.

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