National Alliance Risk Management Practice Exam 2025 - Free Risk Management Practice Questions and Study Guide

When dealing with risks characterized by both high frequency and high severity, the most prudent approach is to avoid such risks entirely when feasible. This is because risks with these attributes can lead to frequent incidents that result in significant financial or operational impacts.

Avoidance entails eliminating the risk through various strategic decisions, such as discontinuing a risky process or not engaging in a potentially hazardous activity. By avoiding such risks, organizations protect themselves from the negative consequences that could arise if these events were to occur.

In contrast, while prevention might seem like a viable approach, it typically focuses on reducing the likelihood of a risk occurring rather than completely eliminating the risk itself. Transferring the risk, such as through insurance, may mitigate some financial impact but does not actually address the underlying risk situation. Retaining the risk often makes sense for low-severity or low-frequency situations but is ill-advised for risks that are both frequent and impactful. Avoidance is ultimately the best strategy for managing high-frequency, high-severity risks.