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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Risk Management

Himalaya Textiles Ltd. relies on a single supplier in Surat for 80% of its dyes. After a risk review, the board decides to sign agreements with two more suppliers in different states so that one supplier's failure does not halt production. Which risk response has the company adopted?

The company has adopted risk reduction through diversification. By adding suppliers in other states, it continues the activity but lowers dependence on one source, reducing both likelihood and impact of disruption. It has neither exited the activity nor shifted the loss to another party.

  1. ARisk avoidance
  2. BRisk reduction through diversificationCorrect
  3. CRisk acceptance
  4. DRisk transfer through insurance

Explanation

Adding alternative suppliers lowers the likelihood and impact of supply disruption while the company continues the activity. This is reduction (mitigation) through diversification. Avoidance would mean exiting the activity; transfer would shift the loss to a third party such as an insurer.

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