3.2 Rejection

Rejection is when the organisation decides that continuing to take the risk is untenable so rejects the risk. In this situation the organisation may need to take steps beyond just formally rejecting the risk, which may mean ceasing projects, stopping work or withdrawing from business segments. The decision to reject a risk must be carefully weighed up against continuing to take the risk, balancing the opportunity against the threat. An organisation’s risk appetite will play a part in whether it rejects a risk.

Rejecting (or avoiding) a risk may be the best strategy if the consequence of the risk is too severe for the organisation to bear or the costs of avoiding the risk are unacceptable, either in terms of the mitigation costs or the lost opportunity to the business. If the consequence of the risk is greater than the organisation’s risk capacity then rejecting (avoiding) the risk may be the only viable course of action.

In practice, rejecting a risk may involve not bidding for a new contract (e.g. companies wishing to avoid corruption risks may choose not to do business in countries with a high risk on the corruption perceptions index). Certain companies may exit entire countries or industries in a bid to avoid certain types of risks.

In certain industries risks are avoided in their design, either through removal of dangerous materials or through designing equipment to be ‘inherently safe’ (i.e. being able to withstand conditions in excess of those permissible).