TARA framework for risk management - P1

TARA framework provides a simple idea of risk strategies. TARA stand for transference, avoidance, reduction and acceptance. Each strategy is suitable for different risks and it is the job of P1 students to be able to recommend suitable strategies for different risks by taking into account the information given.

Transfer
This means to share the risk with another party. Common example will be to buy an insurance to share part of the risk of losses with insurance company. For example, this strategy is suitable when the risk has a significant impact to the company but low probability to occur. It is better to transfer rather than reduce in this case because the risk may not occur. However transfer is limited if there is no alternative arrangements for bearing the risk.

Avoid
This means to avoid the activity that causes the risk. For example, this strategy is suitable when the risk is likely to occur and has a significant impact. However if it is strategically vital to undertake the activity, then transference or reduction may have to be undertaken.

Reduce
This means to reduce the risk exposure probably by carrying out the activity in a different way. For example, this strategy is suitable when the risk does not have significant impact but likely to occur. This is to reduce the likelihood of occurrence by using different method to carry out the activity. However if reduction cannot be done, company might have to accept the risk if it does not have significant impact or avoid it if otherwise.

Accept
This means to accept the risk and do nothing. For example, this strategy is suitable when the risk has a low impact and low probability of occurrence. This is because the risk is not really a matter even if it is realised.

The above only provides some examples on applying TARA. In exam, you have to decide based on the information given rather than remembering when to use which strategy. :)