What is the difference between risk acceptance and risk avoidance?

Risk Acceptance

Risk acceptance, also known as risk retention, involves accepting a known risk without taking any action to avoid loss or reduce the probability of the risk. This involves management deciding to accept a specific risk for a period of time without taking further mitigation or transfer measures.

This situation falls into two categories. Risk acceptance occurs for risks that are too low to be worth protecting against or for which insurance and due diligence are sufficient. Risk acceptance occurs while mitigation measures are underway for risks that require mitigation but cannot be accomplished immediately or would be prohibitively expensive.

This approach is appropriate for situations where the loss from a risk, if it were to occur, would be minimal. In fact, the cost of addressing these risks would be higher than allowing them to occur.

Risk acceptance means that the organization is willing to accept the level of risk associated with an activity or process. Typically, but not always, this means that the results of the risk assessment fall within the tolerance range.

Sometimes, the risk level may not be within tolerance, but an organization still chooses to accept the risk because the alternatives are unacceptable. Exceptions should always be brought to management’s attention and approved by executive management or the board of directors.

Risk Avoidance

Risk avoidance is a risk approach in which an organization chooses not to engage in a certain operation or to shut down an operation due to the risks involved. For example, a company might choose to close or not operate a branch in a high-risk area to avoid the risks involved.

An example of risk mitigation is a company deciding that a network is likely to fail or be overutilized and deploying a cloud solution that will support redundancy and scalability.

Risk avoidance is a way for a business to reduce its risk level by not engaging in certain high-risk activities. Risk avoidance refers to operating a company without certain risks and exposures that could lead to expensive litigation or financial loss.

Risk avoidance is exactly what it sounds like. It is a business approach that avoids engaging in specific categories of activities or business processes because the risks are too high to justify the return on investment.

Risk can be avoided by not accepting or entering into risky events. This approach has serious flaws, as such an option is not always possible or, even when it is, may require giving up some important advantages. However, in some situations, risk avoidance is both possible and desirable.