Accepting Risk

When a company or person recognizes that the possible damage from a risk is not significant enough to justify spending money to avoid it, this is known as accepting risk or risk acceptance. It is a component of risk management that is often referred to as “risk retention” and is frequently seen in the business or investing worlds. According to the theory of risk acceptance, modest and infrequent risks—those without the potential to be catastrophic or otherwise prohibitively expensive—are worthwhile accepting with the understanding that any issues will be resolved if and when they occur. Such a trade-off is an effective technique for budgeting and setting priorities.

To identify, evaluate, and prioritize risks with the goal of reducing, monitoring, and controlling them, many firms utilize risk management approaches. Given the resources available, the majority of organizations and risk management employees will discover that they have bigger and more numerous hazards than they can manage, reduce, or avoid. As a result, organizations need to strike a balance between the expense associated with avoiding or otherwise dealing with a risk and the potential costs of a problem arising from it. Risks can take many different forms, including as market uncertainty, project failures, legal obligations, credit risk, accidents, natural disasters, and excessively aggressive rivalry.

One could see taking on risk as a type of self-insurance. Risks are said to be “retained” if they are not acknowledged, transferred, or avoided. Most instances of a firm taking a risk involve relatively minimal risks.