August 4, 2020 at 8:00 AM
Tolerate, terminate, treat and transfer — we look at the 4Ts of risk management.
We assume that tomorrow will look much like today. But as we’ve seen with Covid-19, that may not be the case. Changes may be profound. This is where good risk management comes in.
Risk management creates and protects organisational value. As such, it should be a natural and inherent part of what every company does. Risk management is an integral part of decision-making because it explicitly addresses uncertainty.
Risk is something uncertain. It may happen. It may not. But either way, it’s important because it will have an impact on objectives. These could be positive, negative or neutral. There are always several options for managing risk.
A good way to summarise the different responses is with the 4Ts of risk management: tolerate, terminate, treat and transfer.
Tolerate
Sometimes it’s okay to do nothing. The likelihood and impact of the risk is low. You may decide to simply retain the risk because it is acceptable without further actions. Log and monitor the risk because retaining a risk should always be an informed decision. You should not find that your organisation has retained a risk by default.
Terminate
Sometimes a risk is so far outside your risk appetite. Or is assessed as having such a severe impact on your business that you have stop (i.e. terminate) the activity causing it. For example, you may decide not to start or continue a business activity in a particular country. Or withdraw a product or service from market that gives rise to unacceptable risk.
Treat
You will almost certainly decide to take action on the most severe risks. You may act to reduce the likelihood of the risk occurring, or the severity of the consequences if it does. For example, install a firewall to reduce the likelihood of an external intrusion to your IT systems. And implement network segregation if an intruder does gain access.
Transfer
Insurance isn’t available for everything. Sometimes while it’s possible to transfer the activity to a third party, you still retain the liability if things go wrong. In the case of the payment card industry data security standards (PCI DSS), a third party arrangement outsources merely the function, not the responsibility or liability for PCI compliance.
To find out more
We’ll be tackling principles for managing risk and what is effective risk management in subsequent blogs. However in the meantime, for a free 30-minute consultation on your data security needs, e-mail sales@pxpfinancial.com or complete your details on the contact form below.
FAQs
Addressing such risks necessitates a strategic approach, often encapsulated in the 4Ts of hazard response: Tolerate, Treat, Transfer, and Terminate.
What are the 4Ts of the risk register? ›
c) The Risk Owners are asked to consider the 4Ts of Risk Treatments – Treat, Tolerate, Terminate, Transfer. Risk actions should reduce the likelihood and/or impact – if neither are true, there will not be any reason to undertake the action.
What is the 4Ts approach? ›
Tolerate, treat, transfer and terminate or the 4Ts. Organizational value is created and protected through risk management. As a result, it should be a natural and integral part of every company's operations. Because it explicitly addresses uncertainty, risk management is an important part of decision-making.
What are the 4 risk management strategies? ›
There are four common ways to treat risks: risk avoidance, risk mitigation, risk acceptance, and risk transference, which we'll cover a bit later. Responding to risks can be an ongoing project involving designing and implementing new control processes, or they can require immediate action, War Room style.
What is risk priority 4? ›
Appendix 3 Levels of Risk / Priority CRITICAL(1) SUBSTANTIAL(2) MODERATE(3) LOW(4) (High) (Medium / Preventative) (Low/ Preventa.
What is risk response? ›
Risk Response: Leadership's response or action towards the existence of a risk. There are different approaches, including: Avoidance - eliminate the conditions that allow the risk to exist. Reduction/mitigation - minimize the probability of the risk occurring and/or the likelihood that it will occur.
What is the risk register and response plan? ›
A mitigation plan, also called a risk response plan, is one of the most important parts of a risk register. After all, the point of a risk management plan is to identify and mitigate possible risks. Basically, it's an action plan.
What are the T's of risk management? ›
Risk management responses can be a mix of five main actions; transfer, tolerate, treat, terminate or take the opportunity. Transfer; for some risks, the best response may be to transfer them.
What is the positive predictive value of the 4Ts score? ›
The positive predictive value of an intermediate and high probability 4Ts score was 0.14 (0.09-0.22) and 0.64 (0.40-0.82), respectively. A low probability 4Ts score appears to be a robust means of excluding HIT. Patients with intermediate and high probability scores require further evaluation.
What are the stages of risk response? ›
Avoidance - eliminate the conditions that allow the risk to exist. Reduction/mitigation - minimize the probability of the risk occurring and/or the likelihood that it will occur. Sharing - transfer the risk. Acceptance - acknowledge the existence of the risk but take no action.
Effective Risk Response Planning can help ensure project success and minimize the likelihood of negative outcomes. There are four primary risk response strategies that can be used to address identified risks: risk avoidance, risk transfer, risk mitigation, and risk acceptance.
What are the 5 basic responses to risk? ›
Schaumburg, IL, USA – Risk managers deal with multiple levels of complexity in a constantly changing threat landscape. There are typically five common responses to risk: avoid, share/transfer, mitigate, accept and increase.
What are the 5 methods for responding to risk? ›
Five common strategies for managing risk are avoidance, retention, transferring, sharing, and loss reduction. Each technique aims to address and reduce risk while understanding that risk is impossible to eliminate completely.
