Risk

Risk


Risk is a concept that denotes the precise probability of specific eventualities. Technically, the notion of risk is independent from the notion of value and, as such, eventualities may have both beneficial and adverse consequences. However, in general usage the convention is to focus only on potential negative impact to some characteristic of value that may arise from a future event.

Risk can be defined as “the threat or probability that an action or event will adversely or beneficially affect an organisation's ability to achieve its objectives”[1]. In simple terms risk is ‘Uncertainty of Outcome’, either from pursuing a future positive opportunity, or an existing negative threat in trying to achieve a current objective.

Risk management, as it is understood today, largely emerged during the early 1990s, but the term “risk management” was used long before this. Since the 1960s, it has been—and frequently still is—used to describe techniques for addressing insurable risks. This form of "risk management" encompasses:

risk reduction through safety, quality control and hazard education,

alternative risk financing, including self-insurance and captive insurance, and

the purchase of traditional insurance products, as suitable.

More recently, derivative dealers have promoted “risk management” as the use of derivatives to hedge or customize market-risk exposures. For this reason, derivative instruments are sometimes called “risk management products.”

The new “risk management” that evolved during the 1990s is different from either of the earlier forms. Often called "financial risk management," it treats derivatives as a problem as much as a solution. It focuses on reporting, oversight and segregation of duties within organizations.

Insurance is also used to cover the risk and used as risk management tool