(ISC)2 Certified in Cybersecurity Practice Exam

What is the term for paying an external party to assume the financial impact of a risk?

1. Risk Mitigation

2. Risk Assessment

3. Risk Acceptance

4. Risk Transference

The correct answer is: Risk Transference

The term that describes paying an external party to take on the financial consequences of a risk is known as risk transference. This approach involves shifting the burden of loss from one entity to another, typically through contracts such as insurance policies. By transferring risk, an organization can protect itself from potentially severe financial impacts and focus more on its core operations without the distraction of possible losses. In a practical sense, organizations often evaluate their risks and decide which ones they can manage internally and which ones might be better handled by external parties. For instance, a company might choose to purchase insurance against property damage, effectively transferring the financial implications of such risks to the insurance provider. The other options describe different strategies related to managing risk. Risk mitigation involves taking steps to reduce the likelihood or impact of a risk, while risk assessment is the process of identifying and analyzing risks that may affect project goals. Risk acceptance means acknowledging the risk and deciding to bear its consequences without taking any measures to manage it. Understanding these distinctions highlights the unique purpose of risk transference as a fundamental part of risk management strategies.