Question

Avoidance is a risk-control technique that can be used effectively in a risk management program. a. What is the major advantage of using the technique of avoidance in a risk management program? b. Is it possible or practical for a firm to avoid all potential losses? Explain your answer.

Answer 1

Answer:The major advantage of avoidance technique in risk management is that it is cheaper than every other method of risk management.

It is possible to avoid all potential loss by company

Explanation:The technique of avoidance save the company deploying it in risk management the stress of paying fines ,loss of funds , reputational damages that may arise among other things should a potential risk crystallized into full blown loss.it involves setting up method or safeguard that protects the institution from a certain level of risk ,it might involves abstaining from certain trasaction as a whole or setting risk limits for certain amount of trasaction,above this limits,it's no deal.

It is possible to avoid potential loss to a barest minimum by adopting the best risk management techniques as applicable,this include hedging in case of currency exchange ,taking insurance against unforseen circumstances, adopting industry best practices,avoiding illegal or overly risky ventures,having a proper risk management team in place.etc

Answer 2

Answer:

a.1. Helps to eliminate hazard activities threatening the entity.

2. Eliminating the need for damage control after risk event.

3. Helps to shift risk appetite to other risk areas.

4. Do not have to tolerate a risk when one can avoid it.

b. No it is not possible, there are inherent risks and also residual risks.

Explanation:

Inherent risks are those risk that occur when controls are not in place and risk avoidance is not risk management.

Residual Risk is a risk after implementing controls  and controls can never be full-proof when there are inherent limitations like involved of humans and are prone to errors, errors like mistakes, misunderstanding.