Which risk management strategy involves retaining all or part of a risk?

The strategy that involves retaining all or part of a risk is referred to as retention. This approach acknowledges that certain risks will be accepted by the organization instead of being fully mitigated, transferred to another party, or avoided altogether. In risk retention, a business may decide to handle certain losses internally, often because the cost of transferring the risk—such as through insurance—or implementing safeguards is deemed more expensive than the potential losses.

Retention can be effective in situations where the likelihood and impact of the potential loss are manageable, or when the cost of insurance is prohibitively high. Organizations that engage in retention need to ensure they have sufficient resources to cover any potential losses that occur as a result of this strategy. This approach is part of a balanced risk management plan, where an organization decides which risks they are willing to carry themselves based on their risk appetite and financial stability. This nuanced decision is crucial for effective risk management, especially in industries where certain risks are common and manageable.