A business buys multiple small warehouses to minimize the effects of a single loss. This is an example of which risk management technique?

A business buys multiple small warehouses to minimize the effects of a single loss. This is an example of which risk management technique?

• A. Separation
• B. Transfer
• C. Avoidance
• D. Reduction

Answer: (A)

Separating exposure by dispersing facilities is a risk management approach that reduces the impact of a single loss event. Owning several small warehouses in different locations means a single disaster is unlikely to destroy all inventory or halt operations. If one warehouse is damaged, the others remain available to carry on, lessening overall losses. This emphasis on spreading assets to lower concentration risk is what separation is about. It’s not about transferring risk (that would be insurance or outsourcing), not about avoiding risk (you’re still operating and accepting some risk), and not primarily about reducing risk (though it can help reduce consequences, the key idea here is separating exposure).

Separating exposure by dispersing facilities is a risk management approach that reduces the impact of a single loss event. Owning several small warehouses in different locations means a single disaster is unlikely to destroy all inventory or halt operations. If one warehouse is damaged, the others remain available to carry on, lessening overall losses. This emphasis on spreading assets to lower concentration risk is what separation is about. It’s not about transferring risk (that would be insurance or outsourcing), not about avoiding risk (you’re still operating and accepting some risk), and not primarily about reducing risk (though it can help reduce consequences, the key idea here is separating exposure).