RISK AND

RISK

MANAGEMENT

PRESENTED BY :
DEVANSHI PANDA - 38
SREEMOTI SENGUPTA - 73
SONALIKA DAS - 113
KALPITA MAHAPATRA- 119
ANSULA MOHANTY - 180

RISK
It is defined as an uncertainty consulting the
concurrency of the loss.
Categorized into two types:
Objective Risk
Subjective Risk
Objective Risk:
It is a variable of actual loss from excepted
loss.
Subjective Risk:

Based on persons mental conditions or state

of mind.

CHANCE OF LOSS
Defined as probability that event can occur.
Divided into two types:
Objective Probability
Subjective Probability
Objective Probability:

long run relative frequency of an event based

on the assumption of an infinite no. of observation
and there is no change in underline conditions .
Subjective Probability:
It is individual personal estimate of the
chance of loss.

SOME RELATIVE TERMS OF RISK

PERIL:
Defined as a cause of loss.
Hazard:
It is a condition that creates or increase
the chance of loss.
It is again divided into 4 types:
Physical
Moral
Morale
Legal

 Physical:

physical condition that increases the chance of loss.

Moral:
It is dishonesty or character defect in an individual that
increases the frequency or severity of loss.
Morale:
It is the carelessness or indifferent to a loss .
Legal:
It refers to the characteristics of the legal system or
regulatory environment that increases the frequency or
severity of the loss.

CATEGORIES OF RISK

 Fundamental Risk:
It is defined in which effect the entire

economy or large no. of persons or groups within

the economy.
Particular Risk:
It effects only the individuals not the the
entire community.
Enterprise Risk:
It is a relatively new term that
encompasses all major risk faced by a business
norm.

 Speculative Risk:

It is a situation in which either profit or loss is possible.

Pure Risk:
It is defined as a situation in which there are only the
possibility of loss and no loss.
There are different types of risk exist which are as follows:
Personal Risk:
It directly effects an individual.
Property Risk:
Under this risk contains direct loss and indirect loss.

 Direct loss:

It is a financial loss that results from the physical

damage ,destruction or theft of the property.
Indirect loss:
It is the financial loss that results indirectly from the
occurrence of the direct physical damage or theft.
Liability Risk:
It is another type of pure risk that most person face
under legal system, that one can be held legally liable for
something that results in bodily injury or property damage.

RISK

MANAGEMENT
Identifies
loss
exposures
faced by an
organization
.

Loss
exposure is
any situation
or
circumstance
in which loss
is possible.

Highlights the
most
appropriate
techniques for
treating loss
exposures.

Objectives of
Management:

Risk

Pre loss :
The firm should prepare for potential losses in the

most economical way.

Reduction of anxiety
Meet any legal obligation.
Post loss:
Survival of the firm
Continue operating
Stability of earning
Continue growth of the firm
Minimize effects that a loss will have on other
persons and society.

Steps in
Process

Risk Management

Identify loss exposures: This step involves

painstaking analysis of loss exposures like

Property Loss Exposure

Liability Loss Exposures
Business Income Loss Exposures
Human Resource Loss Exposures
Crime Loss Exposures
Employee Benefit Loss Exposures
Foreign Loss Exposures

There are five methods of identifying loss

exposures.
I. Risk Analysis Questionnaires
II. Physical Inspection
III. Flowcharts
IV. Financial Statements
V. Historical Loss data
Analyze the loss exposure: It involves
estimation of frequency & severity of loss.
Loss Frequency: Probable number of losses
that may occur during some given time period.

Loss Severity: It refers to the probable size of

the losses that may occur.
Both maximum & maximum probable loss are
estimated.
Maximum possible loss is the worst loss that
could happen to a firm during its lifetime.
Maximum probable loss is the worst loss that
is likely to happen.
Select appropriate techniques for treating
the loss exposures:
It broadly consist of two techniques:

1. Risk Control: It describes techniques for reducing the

frequency or severity of loss.

Avoidance: It means a certain loss exposure is
never acquired , or an existing loss exposure is
abandoned.
Loss Prevention: It refers to measures that
reduce the frequency of a particular loss.
Loss Reduction: It refers to measures that reduce
the severity of a loss after it occurs.
2. Risk Financing: It refers to the techniques that provide
funding of losses after they occur.

 Retention : It means that the firm retains part or all

losses that can result from a given loss. It can be either

active or passive.

Noninsurance Transfers: Noninsurance transfers are

methods other than insurance by which a pure risk and

its potential financial consequences are transferred to
another party.

Commercial Insurance: Commercial insurance is also

used in a risk management program. Insurance is

appropriate for loss exposures that have a low
probability of loss but for which the severity of loss is
high.

 Implement & Monitor the risk management

process.
Risk Management Policy Statement: This
statement outlines the risk management
objectives of the firm.
Risk Management Mannual : It consists of

details of risk management program & helps

in training new employees .
Co operation with other departments like
accounting , finance , marketing , production
and human resources.