Loss Avoidance

Loss avoidance means refraining from an activity because the risk attached to it is sufficiently severe. It is a risk-control method. Instead of managing an exposure, an organization removes it by not starting, or by discontinuing, the activity that creates it.

The Government of Canada uses the term in its procurement risk-management guidance on CanadaBuys, under liability and risk management. It sits among the ways of controlling loss, and it is the option that eliminates exposure rather than reducing, transferring or accepting it.

How the CanadaBuys Buyer's Guide describes loss avoidance

The CanadaBuys Buyer's Guide section on liability and risk management states that effective risk control involves processes designed to "avoid, prevent, reduce or transfer losses." Loss avoidance is the avoidance element of that list. The guide defines it as refraining from activities because of the severe nature of the risk.

The guide illustrates the idea with a contractor that discontinues a business line. In the example, a food-services firm stops selling tobacco products because of its potential exposure to class-action litigation. The firm does not insure the risk or limit it by contract. It leaves the activity, and the exposure leaves with it.

Loss avoidance compared with reduction, transfer and acceptance

Loss avoidance is distinct from the other risk responses. Risk reduction keeps the activity going while making a loss less likely or less costly. Risk transfer moves some or all of the financial consequence to another party. Risk acceptance keeps the activity and the exposure as they are.

Loss avoidance is the only one of these that ends the activity creating the risk. That makes it a decision about whether to be in a line of business at all, not a decision about how to operate within it. Because it can mean giving up revenue, it is generally reserved for risks severe enough to justify that choice.

The related NATO term: risk avoidance

NATO's terminology database, NATOTerm, is maintained by the NATO Standardization Office and contains military and relevant non-military terminology. NATO states that terminology approved through its process supports a common language and interoperability across the Alliance. Details are available through NATOTerm and the NATO article A common language for NATO and its partners.

"Loss avoidance" is not an approved NATOTerm entry. NATO materials use the closely related expression risk avoidance. A NATO security-policy document uses it with the objective of eliminating a risk by removing the activity, or changing the condition, that causes it. The logic matches the Canadian description: the exposure is dealt with at its source.

What loss avoidance means for a supplier bidding on Canadian public contracts

The CanadaBuys material is guidance written for procurement buyers. It is not a solicitation, a contract clause or a deliverable directed at suppliers. No Canadian defence-procurement clause or mandatory supplier deliverable titled "Loss Avoidance" has been identified.

For a bid team, the term is a way to frame a decision, not a compliance step. Choosing to pass on a solicitation, or to leave a line of business, because the exposure is too severe is loss avoidance in the sense CanadaBuys describes. What you must actually do on any given bid is set by the solicitation and the resulting contract, so read those documents first.