Managing Risk

1. Avoiding Risk:
   • Choosing not to engage in risky activities.
   • Advantage: Eliminates the possibility of loss.
   • Disadvantage: May not always be practical.
2. Reducing Risk:
   • Taking steps to minimize potential losses.
   • Advantage: Mitigates harm without avoiding activities.
   • Disadvantage: Can require significant resources.
3. Retaining Risk:
   • Accepting potential losses and preparing for them, e.g., setting up emergency funds.
   • Advantage: Allows taking calculated risks.
   • Disadvantage: You bear the consequences of loss.
4. Transferring Risk:
   • Using insurance to shift financial risk to another entity.
   • Advantage: Provides financial protection.
   • Disadvantage: Can be expensive.