Framework

Four ways to treat a risk

The question it answers

Once a risk's likelihood and impact have been measured, should the management team avoid it, reduce it, share it or retain it?

Origin
International Organization for Standardization, 2018; Smith and Stulz, 1985
Diagram type
2×2 matrix
Level of analysis
Firm
Topics
Corporate financeEthics & corporate governance
Stack of clay coins beside a rising glass bar chart, icon for finance

Diagram

Four ways to treat a risk

LowImpactHigh
Share, e.g. insureMedium risk
Avoid the activityHigh risk
Retain and budgetLow risk
Reduce, e.g. hedge, controlsMedium risk
LowLikelihoodHigh

Sources

References

Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.

  1. International Organization for Standardization (2018) ISO 31000:2018 Risk management – Guidelines.No DOIiso.orgSource page
  2. Smith, C.W. and Stulz, R.M. (1985) ‘The determinants of firms' hedging policies’, Journal of Financial and Quantitative Analysis, 20(4), pp. 391–405.doi:10.2307/2330757Source page