Which of the following methods allows individuals to financially absorb the impact of a risk?

The method of retention involves individuals or organizations choosing to accept the risk rather than trying to avoid it, transfer it, or reduce it. This approach acknowledges that some level of risk is inherent in various activities or decisions. By retaining the risk, individuals or organizations are essentially preparing to absorb the financial impact that may arise from potential losses.

This method is particularly useful when the cost of mitigating the risk through avoidance, transfer, or reduction exceeds the potential loss. For example, a business may opt to retain risk related to minor operational setbacks because it is more economical to handle the risks internally rather than purchasing insurance or implementing costly safety measures. In this way, retention aligns with the idea of being prepared to financially manage the consequences of a risk that might materialize.