When analyzing risks, how should a risk with low frequency and high severity typically be handled?

When analyzing risks characterized by low frequency and high severity, it's typically advisable to handle them through transfer or reduction. This combination indicates that while these risks may not occur often, when they do, the potential impact can be significant.

Transferring the risk means finding a way to pass the potential consequences onto another party, such as through insurance or outsourcing certain activities. This approach mitigates the financial and operational impact on the organization, allowing it to focus on more predictable and manageable risks.

Reducing the risk involves implementing measures to lessen the likelihood or severity of the threat, such as investing in safety protocols, regular training, or emergency preparedness plans. Even if the occurrence is rare, ensuring that the organization is prepared for such high-severity events is crucial for maintaining stability and resilience.

In contrast, simply accepting the risk might leave the organization vulnerable to severe consequences if the risk does materialize, while retaining it implies a conscious decision to bear the risk's effects without a structured mitigation strategy. Similarly, prevention may not be feasible for low-frequency risks since resources may not be justified for potential threats that occur infrequently but could have severe repercussions. Thus, transferring or reducing is the most strategic approach to manage these specific types of risks effectively.