In risk management, what does the retention method refer to?

The retention method in risk management refers to the practice of assuming the risk and paying for any losses that may arise from it. This approach typically implies that an organization recognizes certain risks as manageable or tolerable and therefore decides not to transfer those risks to another party, such as an insurance company. Instead, the organization accepts the potential losses and budgets for them.

Organizations might choose retention for various reasons, including cost considerations or the belief that the likelihood of a loss occurring is low. This method allows businesses to maintain a certain level of control over their risk management strategies by choosing to self-fund potential losses while also acknowledging the financial implications that could arise.

By contrast, the other options represent different risk management techniques. Shifting risk to another party typically involves transferring the risk through purchasing insurance, while eliminating the risk entirely is usually impractical in most business environments. Controlling the risk might involve implementing safety measures or policies to mitigate potential losses but does not necessarily imply acceptance of the risk as the retention method does.