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. Construction
• C. Separation
• D. Diversification

Answer: (D)

Diversification spreads exposure across multiple products, markets, customers, or revenue streams, so a setback in one area doesn’t derail the entire business. This approach is especially useful for business risks like reliance on a single market or product, supplier concentration, or competitive shifts, because it smooths earnings and reduces volatility from external changes. Hazard risks—such as property damage from fire, theft, or natural disasters—are typically mitigated with redundancy and separation of assets, engineering controls, or loss-prevention measures that directly reduce the chance or impact of the hazard itself. Diversification doesn’t lessen the likelihood of a single hazard occurring or its physical consequences, which is why it’s more appropriate for managing business risk than hazard risk.

Diversification spreads exposure across multiple products, markets, customers, or revenue streams, so a setback in one area doesn’t derail the entire business. This approach is especially useful for business risks like reliance on a single market or product, supplier concentration, or competitive shifts, because it smooths earnings and reduces volatility from external changes.

Hazard risks—such as property damage from fire, theft, or natural disasters—are typically mitigated with redundancy and separation of assets, engineering controls, or loss-prevention measures that directly reduce the chance or impact of the hazard itself. Diversification doesn’t lessen the likelihood of a single hazard occurring or its physical consequences, which is why it’s more appropriate for managing business risk than hazard risk.