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ACCA Strategic Professional · Strategic Business Leader · Managing, monitoring and mitigating risk

Brindle Foods, a mid-sized manufacturer, has listed a risk that a key supplier may fail. The risk committee rates the likelihood as low but the impact on production as severe, and decides to buy from a second supplier as well as the first. Which risk response strategy is the company using?

The company is using risk reduction. By adding a second supplier it lowers its dependence on one source while continuing the activity. It has not avoided the activity, transferred the loss to another party, or simply accepted the exposure.

  1. ARisk reduction through diversification of supplyCorrect
  2. BRisk transfer through insurance
  3. CRisk avoidance by withdrawing from the activity
  4. DRisk acceptance with monitoring only

Explanation

Adding a second supplier lowers the exposure to a single point of failure while the company continues the activity, so it is risk reduction (mitigation). Avoidance would mean ceasing the activity, and transfer would involve passing the loss to a third party such as an insurer. Acceptance would involve doing nothing active.

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