What risk management strategy involves offloading risk to an external party?

The strategy that involves offloading risk to an external party is known as transference. This approach is taken when an organization decides that it is unable or unwilling to bear certain risks itself and instead shifts the risk to another entity, typically through mechanisms such as insurance, outsourcing, or contracting. By transferring risk, the organization can protect itself from potential financial loss or operational disruption associated with that risk.

For instance, purchasing insurance is a common form of risk transference; by doing so, the organization pays a premium to the insurance company, which then assumes the financial responsibility for the covered risks. Similarly, if a company outsources a function such as cybersecurity to a specialized vendor, it transfers the associated risks to that vendor.

This strategy allows organizations to focus their resources on their core operations while minimizing their exposure to specific risks.