Definition
Risk Avoidance
Risk avoidance is eliminating exposure to a risk entirely by not engaging in the activity that creates it.
If a risk is too severe or unacceptable, the cleanest response is to avoid it altogether, for example, choosing not to operate a hazardous process, or declining to build in a flood plain. Avoidance removes both the probability and the consequence of that specific loss.
Avoidance is not always practical or desirable, since avoiding all risk can mean forgoing opportunity and reward. It is one of the four risk responses, used when the risk's downside clearly outweighs any benefit and cannot be adequately mitigated or transferred.
Related terms
- Risk TransferRisk transfer is a risk-management technique that shifts the financial consequences of a risk to another party, typically an insurer.
- Risk RetentionRisk retention is consciously bearing a risk oneself rather than transferring it, by paying for any losses out of one's own resources.
- Risk MitigationRisk mitigation (or reduction) is taking measures to lower the probability or severity of a potential loss.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.