Which risk management strategy involves shifting risk from one organization to another?

The chosen answer, transference, refers to the risk management strategy where the responsibility for a risk is shifted from one party to another. This approach is often employed to minimize the impact of potential risks by transferring them to a third party, such as through the use of insurance, outsourcing, or contractual agreements.

For example, a company might purchase insurance to cover potential losses from a specific risk, effectively transferring the financial burden of that risk to the insurance provider. This strategy allows the organization to focus on its core activities while limiting exposure to risks that could have significant detrimental effects on its bottom line.

Transference is an important aspect of risk management because it enables organizations to mitigate risks while still pursuing their objectives. By shifting risk to another party, companies can reduce the likelihood of incurring substantial losses, thereby achieving a more favorable risk profile.