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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

Case: Kaveri Organics, a startup, sells cold-pressed oils online. Its warehouse stock is worth ₹40 lakh, and a fire would not be fatal to the founders' plan because a fire policy is in place. It also signs a contract under which a logistics partner bears liability for goods damaged in transit. The founders accept that minor price fluctuations of raw seeds will be absorbed from profits. Which option correctly classifies the three actions in the order: fire policy, logistics contract, absorbing price fluctuations?

The correct classification is risk transfer, risk transfer, risk retention. The fire policy passes the loss to an insurer, the logistics contract shifts transit damage liability to the partner, and absorbing small raw material price swings from profits is knowingly accepting, or retaining, that risk.

  1. ARisk transfer, risk transfer, risk retentionCorrect
  2. BRisk retention, risk transfer, risk transfer
  3. CRisk reduction, risk avoidance, risk retention
  4. DRisk transfer, risk retention, risk avoidance

Explanation

A fire policy shifts the financial loss to an insurer, so it is risk transfer. A contract making the logistics partner liable for transit damage also transfers that risk contractually. Absorbing minor seed price changes from profits is deliberate retention. The other options misclassify the contract as retention or avoidance.

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