Certified Supply Chain Professional (CSCP) Practice Exam

What does the 'transfer' risk response mean?

1. Moving the risk to a third party

2. Accepting the risk without any changes

3. Avoiding the risk through changes

4. Reducing the probability of the risk

The correct answer is: Moving the risk to a third party

In the context of risk management, the term 'transfer' refers to the strategy of shifting the responsibility for managing a risk to a third party. This can be accomplished through various means such as purchasing insurance, outsourcing specific activities, or engaging in contracts that delineate the responsibilities for certain risks. By transferring the risk, an organization effectively protects itself from the potential impact of that risk while ensuring that another entity assumes the responsibility for managing it. This strategy is useful when the organization seeks to maintain operational efficiency while mitigating the financial impact of potential risks. The alternative approaches highlighted in the other choices involve different risk management techniques. Accepting the risk implies that the organization is willing to absorb potential consequences without taking any specific action to change the situation. Avoiding the risk involves altering plans or processes to eliminate the risk altogether. Reducing the probability of risk seeks to lower the likelihood of a risk event occurring. Each of these strategies plays a role in a comprehensive risk management plan, but the focus of 'transfer' is specifically on engaging an external party to take over the risks associated with certain activities or exposures.