Writers, particularly in Amirican, have produced a number
of definitions of risk. These are usually accompanied
by lengthy arguments to support the particular view they
put forward. I think you are benefited.
2. The meaning of Risk?
Writers, particularly in Amirica, have produced a number
of definitions of risk. These are usually accompanied
by lengthy arguments to support the particular view they
put forward.
Consider some of these definitions:
Risk is the possibility of an unfortunate occurrence.
Risk is a combination of hazards.
Risk is unpredictability- the tendency that actual results may differ from
predicted results.
Risk is uncertainty of loss.
Risk is the possibility.
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3. 2
Uncertainly
We have used the word uncertainty several times already. In our
first attempt at a working definition of risk, we said that it was
uncertainty about the outcome in a given situation. Uncertainty is at the very core of
the concept of risk itself, but are we clear what we mean by it when we use the
word?
Level of Risk
The second component of risk is the idea that there are
different levels of risk. We cannot make the assumption
that all risks are equally likely to occur, some will be
more or less risky than others. What exactly do we mean we use the word risky,
what do levels of risk mean?
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4. 3
The Classification of Risk?
We turn our attention now to the classes into which risk
can be place. This is different from scrutinizing the actual
idea of risk, we are now looking at the whole concept of
risk and groping together similar classes of risk. Of the
many classes, we will look at three.
Financial and Non-Financial Risk
We have already said that implies a situation where there uncertainty about the
outcome. A financial risk is on e where the outcome can be measured is monetary
teams.
Pure and Speculative Risk
The second risk classification also concerns the outcome. It distinguishes between
those situations where there only the possibility of loss and those where a gain may
also result.
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5. 4
The Cost of Risk
We can look at the cost of risk from a number of
different perspectives. There is at least the:
Frequency of risk;
Monetary cost or financial severity;
Human cost in terms of pain and suffering.
There is no doubt at all that regardless of how we measure risk, it has had a
significant impact on the personal and national life of very many countries. We can
see this by looking back over the last decade, which could certainly be classed as the
decade of disasters. During the last two decades we had a number of incidents, the
names of which have almost entered into the vocabulary of the word.
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6. 5
The Management of Risk
We have looked at the nature of risk, the various
classifications into which it can be put and the
cost of risks. The concept which develops is one
of risk as an all pervasive force in the world;
a negative feature in life bringing unfortunate,
or unlocked for, outcome. The various classifications
that we have used all tend to support the view that
risk is to be avoided at all costs. It would be valuable to stop here for a moment and
take stock of what this means. Are we to conclude that risk has no beneficial side to
it? Is it solely a negative concept implying loss and not gain? Has the world gained
noting from the existence of risk?
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8. 7
Risk Identification
When considering risk identification we must remember
to take the broad view. We are not solely concerned with
what can be insured, or even with what can be controlled.
We start form the very basic question of , ‘How can the
assets or earning capacity of the enterprise be threatened?’
Starting from this position does not place any constraint on us as to what kind of
risks we are looking for. We must begin the task in an unblinkered manner, willing
to identify the whole host of ways in which an organization may be impeded from
achieving its objectives.
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9. 8
Risk Analysis
The second aspect of our definition of risk
man agreement related to the analysis of
risk. Once it has been identified that there
is a risk, than steps have to be taken to
measure the potential impact of area of
statistical analysis and chapters four,
five, six and seven are devoted to the
measurement of risk in various ways.
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10. 9
Risk Control
The final step in the process is that of risk
control. After the risk has been identified and
it has been established that it is important
enough to be controlled, what can be done?
The first thing to say is that the emphasis
must be on economic control. There is little
point in spending $100 pounds to control a
risk which, even in the worst situation, can
only cost the organization $75. There can be
a tendency to want to spend an unrealistic amount on risk control. There will be a
point at which the next pound spent will actually not enhance the profit of the
company at all. In fact it may even begin to be a net cost.
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