Risk management is done to minimize the frequency of the 
risk and also the impact assosciated with the risk.

2 activities assosciated with risk management are:

1. Risk reduction methods
2. Contingency Planning

1. Risk Reduction methods: As risk is frequency multiplied 
by loss assosciated with the risk, to reduce risk we must 
reduce both the risk and also the impact of the loss.

Loss = Frequency of loss * Loss per occurence

Frequency of loss can be reduced by reduce opportunity of 
an error and Identify error prior to loss.

Using a web site example, you could reduce the opportunity 
for customers to leave the web site by
designing the web site so that any customer need can be 
identified in “three clicks” or less. To
implement the other means, to identify the error prior to 
loss, you could track a customer as they
move through the web site to determine if they are making 
too many clicks. If they make too
many, transfer the customer to a web site operator who 
could correctly assist the customer.

Loss per occurence can be mimimized by minimize loss and 
recover loss.

The loss per occurrence associated with an unfavorable 
event can likewise be reduced in two
ways. The loss can be minimized, or an attempt can be made 
to recover the loss. Offering a
customer the opportunity to talk directly to an individual 
might minimize the potential loss. If the
customer’s e-mail address can be captured, a follow-up 
message could go to the customer in an
attempt to reestablish the relationship with that customer, 
and thus, recovering the loss of a sale.

Contingency planning: This is like a back up plan drafted 
when an unfavourable event happens to continue business 
operations.