The document defines and discusses key concepts related to risk. It states that risk comes from the Italian word "risicare" meaning "to dare" and refers to the possibility of danger, loss, or injury from future uncertain events. Risk is measurable uncertainty and can be quantified as the probability of an event multiplied by its consequences. While risk pertains to future possibilities, uncertainty refers to the unknown. The document also distinguishes between peril, which is the cause of loss, and hazard, which increases the chance of loss from a peril. It describes how risk is dynamic and can be transferred or managed but not eliminated by modifying the probability, consequence, or both of future events.

1. What is ‘Risk’All About
• ‘Risk’ is derived from an Italian word ‘risicare’
which means ‘to dare’.
• It is more a ‘choice’ than a ‘fate’
• a degree of variability of possible outcomes for a
particular outcome
• is always associated with loss that is expected to be
incurred due to the happening or non-happening of
certain events or activities.
• It arises as a deviation between what happens and
what was expected to happen.

2. Peril and Hazard
• Peril is defined as ‘cause of loss’.e.g.
fire,earthquake etc.
• Hazard is the condition that
creates/increases the chance of loss arising
out of a given peril.

3. Risk Vs. Uncertainty
• ‘Uncertainty’ radically differs from ‘risk’
• uncertainty means “not known or not certainly
knowing”.
• “I don’t know” (What is going to happen)
• ‘risk’ means “a chance or possibility of
danger/loss/injury or other adverse consequences”.
• Risk is that portion of uncertainty, which is
measurable.
• uncertainty converted into risk by using subjective
probabilities.

4. Risk Vs. Time
• Risk is always in the future
• Risk always pertains to what can
happen but not what has happened
• Risk being the function of time
continues to remain as risk till it
happens.

5. Risk Quantification
• There are no specific units
• Risk has to be calibrated
• it needs information about two variables
viz., the probability of event’s occurrence
and its consequences
• Risk = probability * consequence
Or
Frequency * Severity

6. Risk and Expected Value
• The word ‘Risk’ can be equated with
‘Expected Value’ (used in statistical
parlance) which is obtained by weighting
the possible outcome by its probability.
• Total Expected Value = P1X1 + P2X2 + P3X3
+ - - - + PnXn

7. Characteristics of Risk
• Risk is always bad
• Risk is dynamic
• Risk is not static and keeps changing with time
• Risk Movement Direction Categories
• High consequence- high probability
• Low consequence-high probability
• Low consequence-low probability
• High consequence-low probability
• Risk is predominantly of group-nature

8. Can Risk be Eliminated Totally?
Risk is at best transferable/manageable through
modification but cannot totally be eliminated
Risk can be put in a mathematical equation form as
under:
R(t) = P (t)*C (t)
Where-
R (t) = Value of risk at time ‘t’
P (t) = Probability at time ‘t’
C(t) = Value of consequence at time ‘t’
Thus, risk can be modified in three ways:
Changing the probability P (t)
Changing the consequence C (t)
Changing both the probability and consequence