Probability or threat of a

damage, injury, liability, loss, or

other negative occurrence, caused by external or internal vulnerabilities and which may be neutralized through pre-mediated action.

Danger vs. Opportunity

Risk is the chance of loss, and

peril is the direct cause of the

loss. A hazard is anything that either

causes

or

increases

the

likelihood of a loss.

Danger vs. Opportunity

Pure

Fundamental

Types of Risk

Speculative

 Pure Risk

loss is the only possible outcome.

Is related to events that are beyond the risk-taker's control. Speculative Risk

results in an uncertain degree of

gain or loss. Are made as conscious choices and

are

not

just

result

of

uncontrollable circumstances.

 Fundamental risk

Exposure to loss from a situation

affecting a large group of people or firms, and caused by Natural phenomenon, or Social phenomenon.

Fundamental risks may or may not

be insurable.

What is Risk Management?

Assessing and quantifying risks.

Taking measures to control or reduce them.

Avoiding or minimising losses.

Definition of Risk Management?

Risk Management is the name given to a

logical and systematic method of

identifying, analysing, treating and monitoring the risks involved in any activity or process.

Who uses Risk Management?

Finance and Investment Risk Management practices

Insurance
Health Care Public Institutions

are widely used in public and

the private sectors, covering a wide range of activities or

Governments

operations.
Risk Management is now an integral part of business planning.

The

Risk

Management

process

are

generic

guide

for

any organisation, regardless of the type of business, activity or function

Establish the context Monitoring and review Identify the risks

Process of Risk Management

Treat the risks Evaluate the risks Analyse the risks

Establish boundaries within which the

Establish the context

risk management process will apply.

Establish internal and external factors. Define limits, objects and scope of the activity or issue investigation. Define unacceptable levels of risk. Isolate the categories of risk you want to manage.

Identify all the risks possible Identify the risks affecting the subject either negatively or positively based

on the information collected.

Analyse the risks

Identify
Determine

existing
the

strategies

and controls . consequences

of a negative impact or an
opportunity. Estimate the level of risk by combining likelihood. consequence and

Evaluate the risks

What is the likelihood of the risk event occurring?

Almost certain Likely Moderate Unlikely Rare?

Consequence

Consequence

Extreme Very high Moderate Low Negligible?

Consequence if the risk event occurs?

Treat the risks

Compare the level of risk with previously established risk criteria. Decide whether these

risks require treatment or are acceptable.

Monitoring and review Risk Managers must monitor activities and processes to determine the accuracy of planning assumptions and the

effectiveness
risk.

of

the

measures taken to treat the

Limitation of Risk
Risk management will not make decisions for the business. Risk Risk happen. Risk assessments will not be allencompassing and are therefore not fail-safe. management management will will not not guarantee freedom from all risk.

guarantee

that

accidents

wont

1. Taking steps to remove a hazard,

2. Engage in alternative activity, or

Risk Avoidance

3. Otherwise end a specific exposure.

Risk Retention

Decision maker assumes all or part of a risk.

Risk Reduction

Systematic
in the

reduction
of

extent

exposure to a risk.

strategy in which an insurable

Risk Transfer

risk is shifted to another party

(the insurer) by means of an insurance policy.

Insurance and Risk Management

It is a method of risk transfer.

An insurance contract covers a policyholder for

economic loss caused by a peril named in the policy. The policyholder pays a known premium to have the insurer guarantee payment for the unknown loss. the policyholder transfers the economic risk to the insurance company. Not all risks are insurable.

what makes a risk insurable? What kinds of risk would an insurer be willing to insure?
INSURABLE RISK UNINSURABLE RISK A risk that meets the ideal criteria An uninsurable risk is a risk where for efficient insurance. the potential for loss is too high or where the insurance is considered illegal, criminal, or prohibited by public policy The insurer must be able to charge risk is when a loss is considered a premium high enough to cover not inevitable

only claims expenses, but also to

cover the insurer's expenses.

what makes a risk insurable? What kinds of risk would an insurer be willing to insure?
The risk cannot be catastrophic, or so large that no insurer could hope to pay for the loss. The nature of the loss must be definite and financially measurable. The loss should be random in

nature, else the insured may

engage in adverse selection

Need for Risk management

Uncertainty in Enterprise Growing Complexity in Business Environment Statutory Obligations Contractual Obligations Social Obligations

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