CAP · Question #109
The risk transference is referred to the transfer of risks to a third party, usually for a fee, it creates a contractual-relationship for the third party to manage the risk on behalf of the…
The correct answer is B. Life cycle costing. Risk transference shifts the financial impact or responsibility of a risk to a third party, typically through a contractual arrangement. Use of insurance (A) is a classic transference tool - the insurer assumes the financial risk in exchange for a premium. Warranties (C)…
Question
The risk transference is referred to the transfer of risks to a third party, usually for a fee, it creates a contractual-relationship for the third party to manage the risk on behalf of the performing organization. Which one of the following is NOT an example of the transference risk response?
Options
- AUse of insurance
- BLife cycle costing
- CWarranties
- DPerformance bonds
How the community answered
(27 responses)- A7% (2)
- B89% (24)
- C4% (1)
Explanation
Risk transference shifts the financial impact or responsibility of a risk to a third party, typically through a contractual arrangement. Use of insurance (A) is a classic transference tool - the insurer assumes the financial risk in exchange for a premium. Warranties (C) transfer the risk of product defects to the manufacturer or vendor. Performance bonds (D) are financial guarantees where a third party (bonding company) assumes the risk if the contractor fails to perform. Life cycle costing (B) is a cost estimating and economic analysis technique used to evaluate the total cost of ownership of an asset over its entire life - it has nothing to do with transferring risk to another party. It is a financial planning tool, not a risk response strategy.
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