Which risk mitigation strategy involves transferring risk to another entity?

Which risk mitigation strategy involves transferring risk to another entity?

• A. Accepting
• B. Transferring
• C. Avoiding
• D. Controlling

Answer: (B)

Transferring risk means shifting the potential consequences to another party through contracts, insurance, or other formal arrangements. By doing this, the entity taking on the risk is not the primary owner of the potential losses or liabilities—the risk is borne by someone else, such as an insurer or a supplier under a contract. Common ways to do this include buying insurance, engaging a vendor under a contract that assigns liability, or using indemnities and hold-harmless clauses. This is different from accepting risk, where you acknowledge the possibility but proceed with no changes; avoiding risk, where you change the plan to eliminate the risk entirely; and controlling risk, where you implement measures to reduce either the likelihood or impact of the risk. For example, transferring risk in a project might involve cyber insurance or a contract that requires a vendor to cover certain damages, shifting the financial exposure away from your team.

Transferring risk means shifting the potential consequences to another party through contracts, insurance, or other formal arrangements. By doing this, the entity taking on the risk is not the primary owner of the potential losses or liabilities—the risk is borne by someone else, such as an insurer or a supplier under a contract. Common ways to do this include buying insurance, engaging a vendor under a contract that assigns liability, or using indemnities and hold-harmless clauses.

This is different from accepting risk, where you acknowledge the possibility but proceed with no changes; avoiding risk, where you change the plan to eliminate the risk entirely; and controlling risk, where you implement measures to reduce either the likelihood or impact of the risk. For example, transferring risk in a project might involve cyber insurance or a contract that requires a vendor to cover certain damages, shifting the financial exposure away from your team.