Low Frequency, Low Severity risks are typically managed by which approach?

Low Frequency, Low Severity risks are typically managed by which approach?

• A. Retention
• B. Transfer
• C. Avoidance
• D. Diversification

Answer: (A)

Low frequency, low severity risks are typically managed by retention because the potential losses are small and the cost of more active risk treatment would outweigh the benefit. Retention means accepting the risk and budgeting for potential losses, rather than paying to transfer it to someone else or to eliminate the risk entirely. For such risks, resources are better spent on higher-priority areas. Transferring the risk (like insurance) shifts the financial burden but isn’t cost-effective when the likelihood and impact are both minor. Avoidance would remove the activity altogether, which isn’t desirable if it provides value. Diversification can reduce overall risk across many items, but for a single minor risk, retention is the standard, practical approach.

Low frequency, low severity risks are typically managed by retention because the potential losses are small and the cost of more active risk treatment would outweigh the benefit. Retention means accepting the risk and budgeting for potential losses, rather than paying to transfer it to someone else or to eliminate the risk entirely. For such risks, resources are better spent on higher-priority areas. Transferring the risk (like insurance) shifts the financial burden but isn’t cost-effective when the likelihood and impact are both minor. Avoidance would remove the activity altogether, which isn’t desirable if it provides value. Diversification can reduce overall risk across many items, but for a single minor risk, retention is the standard, practical approach.