1. Avoidance is a risk-control technique that can be used effectively in a risk management program.
a. What is the major advantage of using the technique of avoidance in a risk management program?
The major advantage of avoidance is that the chance of loss is reduced to zero if the loss exposure is never acquired. Also, if an existing loss exposure is abandoned, the chance of loss is reduced or eliminated because the activity or product that could produce a loss has been abandoned.
b. Is it possible or practical for a firm to avoid all potential losses? Explain your answer.
It is not feasible or practical for a firm to avoid all potential losses. Some losses will occur in the normal operations of the firm's business. For example, a paint factory can avoid fire and explosion losses arising from the production of paint by not manufacturing paint. Without paint production, however, the firm will not be in business.