This is the formulation of a chosen approach/plan to deal with identified risks. Managers formulate strategies using risk management cycle and selecting the most appropriate risk mitigation options.
The 4-Ts of risk
1. Tolerate – Accepting the risk. This is where the assessed likelihood or impact of the risk is negligible or there is no viable way to reduce the risk. The risk may be acknowledged, registered or flagged for monitoring and periodic evaluation in case the likelihood or impact of the risk escalates to defined threshold.
2. Transfer – This happens by taking an insurance cover or using dual or multi-sourcing or using contract terms to ensure the cost of risk events will be born or shared with supply chain partners.
3. Treat — Implies taking active steps to manage the risks in such a way as to reduce or minimize its likelihood, potential impact or both.
4. Terminate – If risk associated is too great or can‘t be reduced, the organization may consider not investing or engaging on the opportunity. It avoids unacceptable risk but is not always possible. In addition, there may be loss of opportunity. An integrated systematic and strategic level approach to risk management involves the following elements:
- Integrated management of an organization full spectrum of risk.
- Requires dealing with risk as a strategic issue from a high level corporate perspective.
- Recognizing fact that strategic success depends on your appetite towards risk.
- Engaging all functions and align all management level in the process.
- Bringing the silos of risk disciplines.