What is risk?

Risk is something that is uncertain. Risk is a pervasive condition of human existence. A car accident , fire , theft, natural calamities like earthquake , flood, etc cause harm to some people while others go along happily free from this misfortune which we call as risk that causes loss. Therefore such losses are uncertain. The term risk used by people in the business mean either a peril against a person or property.

Definition:
Risk is defined as a condition in which there is a possibility of an adverse deviation from a desired outcome, that is expected or hoped for. Thus , risk is a combination of circumstances, and in this combination , there is a possibility of loss.

Classification of Risks:
1 2

Financial and Non-financial risks Static and Dynamic risks

Pure and Speculative risks

The risk can be classified in different ways:

a) Financial and Non-financial risks: The term risk includes all situations in which there is an exposure to adversity. In certain cases, this adversity involves financial loss, and in some cases it does not . There is some element of risk in every aspect of human endeavor and many of the risks have no financial consequences.
b)Static and Dynamic risks: Dynamic risks are those resulting from changes in the economy, which include Change in the price level , consumer tastes , income , output , technology. Dynamic risks are generally considered as less predictable. Static risk involves those losses that would occur even if here is no change in the Economy . These risks arise due to perils of nature and dishonesty , or human failure. Static risks tend to occur with a degree of regularity over time and Therefore , these are generally predictable. c)Pure and Speculative risks: The term pure risk is used to designate those situations that involve only the Chances of loss or no loss. It is related to the possibility of loss surrounding the Ownership of property. Speculative risk is a situation in which there is possibility of loss but also a Possibility of gain. In a gambling situation risk is created with a hope of gain. The Businessman faces speculative risk in the quest for profit.

Types of Pure Risks :

Personal Risk Property Risk Liability Risks Risks Arising Out of Failure Fundamental and Particular Risks

Pure risk that exist for individuals and business firms are classified as follows:
1)Personal risk: Personal risks consist of the possibility of loss of income as a result of the loss of the ability to earn income. 2)Property risk: Individuals or business who own property can face property risk because of destruction or theft. 3)Liability risk: Liability risks involve the possibility of loss of present assets or future income as a result of damages assessed or legal liability arising out of either intentional or unintentional injury of other persons or damage to their property through negligence or carelessness. 4)Risks arising out of failure: When a person agrees to perform a service for you, he undertakes an obligation that your hope will be met. When the person fails to meet the obligation, it would result in your financial loss and there exists a risk. 5)Fundamental and particular risks: Fundamental risks are the losses which are impersonal in origin and consequences. These are group risks caused by economic, social and political phenomena, or may be because of physical occurrences. These risks affect all the people. Particular risks are losses which arise out of individuals events. Thus, fundamental risks are losses caused by conditions beyond the control of individuals. Particular risks are considered to be the individuals own responsibility.

RISK MANAGEMENT:Risk management is a scientific approach to the problem of pure risk in the business. The objective of risk management is to reduce or eliminate the pure risk faced by the business. Although, risk management is a recent phenomenon, the actual practice of risk management is very old. It is a process of protecting the persons and the assets. It is a managerial function which uses scientific approach to dealing with risks.

Definition:Risk management is a scientific approach to dealing with pure risks by anticipating possible accidental losses and designing and implementing procedures that minimize the occurrence of loss or the financial impact of losses that do occur.
A science is a body of knowledge based on laws and principles that can be used to predict outcomes. In this sense, risk management is a scientific approach. Pure risk is the chance of loss or no loss. It covers the risk of persons or property. Risk management is a solution to the challenges in dealing with pure risks. It involves decision making. It seeks to make the best decision about dealing with a particular risk.

Definition
Risk management is a scientific approach to dealing with pure risk by anticipating possible accidental losses and designing and implementing procedures that minimize the occurrence of loss or the financial impact of the losses that do occur.

Goals of Risk Management

GOALS OF RISK MANAGEMENT

The idea behind using risk management practices is to protect business from being vulnerable. Many business risk management plans may focus on keeping the company viable and reducing financial risks. However, risk management is also designed to protect the employees, customers and general public from negative events like fires or acts of terrorism that may affect them. Risk management practices are also about preserving the physical facilities, data, records and physical assets a company owns or uses.

RISK MANAGEMENT TOOLS:

Two broad techniques that are used in risk management for dealing with risks are: a)Risk Control and

b)Risk Financing.