Which method of managing risk involves sharing that risk with another party?

The method of managing risk that involves sharing that risk with another party is transferring risk. This approach typically includes outsourcing certain activities, purchasing insurance, or entering into partnerships where another entity agrees to take on a portion of the risk exposure. By transferring risk, an organization can mitigate its own risk by leveraging the capability or expertise of another party, making it a strategic financial decision aimed at reducing the potential impact of risks on the organization.

Transferring risk allows an organization to focus its resources on its core competencies while relying on other entities to manage certain risks. For instance, by purchasing insurance, the financial burden of certain risks is shifted away from the organization and onto the insurer. This method is particularly effective in scenarios where the organization may not have the capacity or expertise to handle specific risks effectively.

In contrast, tolerating risk involves accepting the risk without taking any action, which means the organization acknowledges the risk but does not seek to share or mitigate it. Terminating risk would mean completely eliminating the risk, often through stopping certain activities, which is not related to sharing. Treating risk typically involves implementing controls or making changes to minimize the risk, rather than sharing it with others. Thus, transferring risk is the most appropriate term for sharing risk with another party.