Which of the following is the BEST reason for an enterprise to avoid an absolute prohibition on risk?

Which of the following is the BEST reason for an enterprise to avoid an absolute prohibition on risk?
A . It may not be understood by executive management.
B . It may lead to ineffective use of resources.
C . It may not provide adequate support for budget increases.

Answer: B

Explanation:

An absolute prohibition on risk means that an enterprise avoids any and all forms of risk, regardless of potential benefits.

This approach can lead to the following issues:

Inefficiency in Resource Allocation: Absolute risk avoidance can cause an enterprise to allocate resources ineffectively. For example, by avoiding all risks, the enterprise may miss out on opportunities that could bring substantial benefits. Resources that could be invested in innovation or improvement are instead tied up in mitigating even the smallest of risks.

Stifling Innovation and Growth: Enterprises that are overly risk-averse may hinder innovation and growth. Taking calculated risks is essential for driving new initiatives, products, or services. Without accepting some level of risk, companies might lag behind competitors who are willing to innovate and take strategic risks.

Poor Risk Management Practices: By trying to avoid all risks, enterprises might develop a risk management strategy that is more about avoidance than mitigation and management. Effective risk management involves identifying, assessing, and mitigating risks, not completely avoiding them.

This ensures that the company is prepared for potential challenges and can manage them proactively.

Reference: ISA 315 Anlage 5 and Anlage 6 discuss the importance of understanding and managing risks associated with IT environments. They highlight the need for a balanced approach to risk management that includes both manual and automated controls to handle various risk levels (e.g., operational, compliance, strategic).

SAP Reports and Handbooks highlight the necessity of balancing risk with operational efficiency to maintain effective resource allocation and drive business objectives forward.