Skip to content

CMA Final · Strategic Performance Management and Business Valuation · Risk Management

In enterprise risk management, a company decides to exit a product line because the potential losses from regulatory changes are judged to be beyond its tolerance. Which risk response does this represent?

This is risk avoidance. By exiting the product line entirely, the company removes the exposure to the regulatory risk instead of lowering it, transferring it or tolerating it. Avoidance is chosen when potential losses exceed what the firm is willing to bear.

  1. ARisk avoidanceCorrect
  2. BRisk reduction
  3. CRisk sharing
  4. DRisk acceptance

Explanation

Withdrawing from the activity altogether eliminates exposure to the risk, which is the defining feature of avoidance. Reduction would keep the activity but lower likelihood or impact, and sharing would transfer part of the loss to another party. Acceptance would mean continuing without any action.

Did you get it right without looking?

One question tells you little. A timed set on Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Risk ManagementFree diagnostic mock

More Risk Management questions