First : Vocabulary. In risk management like in any field, the first step is to define a vocabulary for everyone to use. A good start would be to use the ISO guide 73:2009 which defines about 53 terms linked to risk management.

If you want to modify a particular risk, ISO guide 73 proposes risk treatment. Risk treatment can involve:

• avoiding the risk by deciding not to start or continue with the activity that gives rise to the risk;
• taking or increasing risk in order to pursue an opportunity;
• removing the risk source;
• changing the likelihood;
• changing the consequences;

You can for example define risk treatment = risk reduction and/or risk financing with

Risk reduction can involve:

• avoiding the risk by deciding not to start or continue with the activity that gives rise to the risk;
• taking or increasing risk in order to pursue an opportunity;
• removing the risk source;
• reducing the likelihood;
• reducing the consequences;
• contractual transfer for risk control (subcontracting)

Risk financing can involve:

• contractual transfer for risk financing = sharing the risk with another party or parties;
• risk retention = retaining the risk (usually by informed choice)

You go further

Risk reduction can involve:

• risk avoidance = avoiding the risk by deciding not to start or continue with the activity that gives rise to the risk;
• risk elimination = removing the risk source;
• risk prevention = reducing the likelihood;
• risk protection = reducing the consequences;
• contractual transfer for risk control (subcontracting)

Second : Aspects of risk reduction.

There are 3 important aspects in any risk reduction measure.

1.       Action on the danger. Risk reduction focus on actual harm, on actual danger, on a particular risk, not on the money paid, which is the concern of risk financing. For example, when a car has an accident, the severity of the loss is not reduced because the owner of the car or the family of the injured receive financial compensation for the loss. Risk financing techniques are not risk control techniques.

2.       Action to an entity. Risk reduction can be measured only from the perspective of a given entity. For example, spray applications of paints create several hazards such as fire hazard because many solvents and paints are flammable and health hazard because many solvents and paints are toxic. If you impose the painter to wear a personal protective devices (respirators), this risk reduction measure reduce the health hazard (the danger) to the painter (the entity), but does not reduce the fire hazard (another danger) to workers of the factory (another entity). A more efficient risk reduction measure would be to replace the paints or solvents by another one – non flammable, non toxic substance.

3.       Efficiency of an action. The efficiency of any risk reduction measure should evaluated. The level of risk should be evaluated before and after the measure. However, please remember that a measure to control one kind of loss could increase the frequency or severity of other losses. Therefore, any risk reduction measure should reduce the aggregate level of risk.

In summary, risk elimination can be used is if one (or several) particular hazard disappears for one (or several) entity. Risk substitution can be used if you “removing the source of risk introduces new thing which has less or no risk as previous” linked to a particular hazard exposing a particular entity.