Which risk control technique is more commonly applied to managing business risks, rather than hazard risks?

Which risk control technique is more commonly applied to managing business risks, rather than hazard risks?

• A. Duplication
• B. Diversification
• C. Construction
• D. Separation

Answer: (B)

Diversification reduces exposure by spreading activities, markets, and revenue sources so a setback in one area doesn’t drag down the whole business. In risk management, this approach targets business risks like revenue concentration, market shifts, or supplier disruptions—areas where relying on a single product, customer, or region can threaten profitability. For example, a company that sells several product lines and operates in multiple regions won’t be as vulnerable if one product falters or a single market slows. Hazard risks, by contrast, focus on preventing or mitigating physical losses, and the common controls there are duplication (backups, backups of critical assets) or separation (placing assets in different locations to avoid a single catastrophic event). Construction of barriers or engineered controls is also used to reduce hazards, but diversification is the technique most aligned with managing business risk.

Diversification reduces exposure by spreading activities, markets, and revenue sources so a setback in one area doesn’t drag down the whole business. In risk management, this approach targets business risks like revenue concentration, market shifts, or supplier disruptions—areas where relying on a single product, customer, or region can threaten profitability. For example, a company that sells several product lines and operates in multiple regions won’t be as vulnerable if one product falters or a single market slows.

Hazard risks, by contrast, focus on preventing or mitigating physical losses, and the common controls there are duplication (backups, backups of critical assets) or separation (placing assets in different locations to avoid a single catastrophic event). Construction of barriers or engineered controls is also used to reduce hazards, but diversification is the technique most aligned with managing business risk.