ABC Company is trying to minimize the severity of potential losses within its company. What type of risk management is it engaged in?

The scenario describes ABC Company seeking to minimize the severity of potential losses, which aligns with the concept of risk reduction. Risk reduction involves implementing measures or strategies that lower the likelihood or impact of risks. This can include practices such as improving safety procedures, providing employee training, or enhancing the security of physical and digital assets. By reducing the severity of potential losses, the company aims to mitigate risks that could have a significant negative impact on its operations and financial performance.

Other methods of risk management, such as transference, retention, and avoidance, serve different purposes. Transference involves shifting the risk to another party, like outsourcing or purchasing insurance; retention means accepting the risk and planning to manage its consequences; while avoidance entails eliminating the risk altogether by ceasing the activity that introduces it. In this context, since the company is focusing on reduction to minimize potential losses rather than transferring, retaining, or avoiding the risk, the approach taken is accurately identified as risk reduction.