Evolution of Risk Management

• Risk management enhances decision-making by providing information on potential outcomes.
• Resilience promotion helps organizations withstand and adapt to disruptions and uncertainties.
• Mitigating risks involves recruitment and selection, managing employee performance, and maintaining a positive work environment.

Evolution of Risk Management & Risk in Society

• Ancient civilizations (3000 BC – 476 AD) developed irrigation and granaries in Mesopotamia to store surplus crops.
• Ancient Egypt diversified crops building levees to protect against Nile floods.
• The medieval era (476 AD – 1453 AD) saw lords offering protection for loyalty and labor in a feudal system.
• Guilds and trade associations emerged, providing mutual aid, apprenticeship, and quality standards.
• During the Industrial Revolution (1760-1840), insurance companies began offering policies for risks like fire, accidents, and death.
• Worker safety regulations marked the beginning of formal workplace safety standards.
• The 20th century led to financial risk management strategies using investments and special contracts.
• A regulatory framework was established to oversee banks and markets for safety and transparency.
• The late 20th and early 21st century saw globalization and technological advancements, leading to cyber threats and environmental risks.
• Enterprise risk management was adopted by organizations, integrating risk management across all operations.

Chance of Loss and Hazard Defined

• Chance of loss refers to the probability of an undesirable event leading to harm, damage, or loss.
• Hazard denotes conditions with the potential to cause harm, damage, or loss.

Categories of Risk

• Pure risks involve situations with only the possibility of loss, with no chance of gain.
• Personal risks pertain to an individual's health, life, and well-being.
• Property risks involve the damage or loss of property due to perils.
• Liability risks involve legal obligations to compensate others for harm, including lawsuits and damages.
• Speculative risks involve situations with gain and loss possibilities, often tied to financial or business ventures.
• Financial risks include fluctuations in stock prices, interest rates, and currency exchange rates.
• Business risks encompass aspects of activities including market, competition, and operations.
• Market risks arise from changes in market conditions, preferences, or regulations impacting business performance.
• Credit risks involve the possibility of default by borrowers on loans or debts.
• Strategic risks stem from actions taken by an organization related to long-term goals and direction.
• Reputational risks involve damage to an organization's image due to negative publicity or scandals.
• Operational risks relate to internal processes, systems, and procedures, including errors, fraud, and IT failures.
• Regulatory and compliance risks involve non-compliance with laws, regulations, or industry standards, leading to penalties.

Risk Issues in Operational Management

• Operational risk involves the risk of loss from inadequate internal processes, people, systems, or external events.
• The definition of operational risk includes legal risk, but excludes strategic and reputational risk.
• The primary objective of investment is to grow wealth over time using assets with the potential to increase in value.

Types of Investment Risk

• Market risk is the risk that the overall stock market will decline in value.
• Interest rate risk is the risk that interest rates will rise, causing bond prices to fall.
• Inflation risk is the risk that the purchasing power of money will decline over time due to inflation.