Risk Management: Definitions and Classifications PDF

**Oxford English Dictionary** -- the possibility of loss, injury, or other adverse or unwelcome circumstances, situation. **Investopedia** -- the chance that an investment's actual return will be different from the expected; the possibility of losing some or all of the original investment. **Wikip...

**Oxford English Dictionary** -- the possibility of loss, injury, or other adverse or unwelcome circumstances, situation. **Investopedia** -- the chance that an investment's actual return will be different from the expected; the possibility of losing some or all of the original investment. **Wikipedia** -- risk is the potential of gaining or losing something of value. **Business Dictionary** -- risk is the possibility or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, **NEDA** -- the possibility of deviation in the actual project outcome **llA -- Institute of Internal Auditors --** risk is defined as the possibility that an event will occur, which will impact an organization's achievement of objectives. [Changes is:] A. **Certain** B. **Unavoidable** [This refers to all sorts of conditions, namely:] a. **Personal** - This refers to changes in an individual\'s life or health. b. **Management**- this refers to how things are organized or controlled, especially in businesses or workplaces. c. **Financial**- This relates to someone\'s or a business\'s money situation d. **Economic** -This refers to the overall state of the economy, such as jobs, prices, or trade. Risk is: **A result** **An effect** **An outcome or** of action taken (or not taken) despite uncertainty. **A consequence**s **Exposure** - The POSSIBLITY of Gain/Loss. **Uncertainty** - having two or more potential outcomes for an event or situation. [Characteristics of risk ] **Uncertainty** -- it may or may not happen. **Gain/Loss** -- the reality and wanted/unwanted consequences. **Objective Risk** -- degree or relative variation of actual loss from expected loss. **Subjective risk** - refers to the personal perception or feeling of risk, which can vary from person to person. **business risk**- refers to the possibility that the company may experience loss in terms of profit. **Increased competition** - When new or existing businesses offer similar products or services, competition can reduce market share and profits. **Economic circumstances** - Economic downturns, inflation, recessions, or global financial crises can impact consumer spending and business profitability. **Financial Situations**- Poor financial management, excessive debt, lack of funding, or cash flow issues can lead to business failure. **Consumer preferences -** Changing tastes, trends, or demands can make a product or service less desirable. **Change in government policy-** New laws, taxes, trade regulations, or policies can impact business operations and profitability. **Outmodedness-** If a business fails to innovate and adapt to new technology or industry trends, **Other inherent factors-** Various risks such as natural disasters, legal issues, supplier disruptions, or cyberattacks can threaten a business. [Types of Risk that a business may face] **Political Risk** - May include a change in government policy. **Inflation Risk** -Also known as purchasing power risk. **Exchange Rate Risk-**Indirect risk involved in foreign exchange fluctuations. **Currency Risk** - Arises due to uncertainty in exchange rates. **Interest Rate Risk** - The risk that the relative value of a security, especially bond, will worsen due to an interest rate increase **Liquidity Risk -** The various operational difficulties which may include a temporary inability to convert assets to cash **Credit Risk-** The stake of loss attributed to debtor's non -- payment on a loan or non -- compliance of contractual obligations. [Sub -- Categories of Business Risks] **Market Risk** - Also called systematic risk **Strategic Risk** -The process of: Identifying, Assessing Managing **Sales Risk** -The potential for sales failures. **Management Risk -** Losing management support **Budget Risk** -The likelihood for the approximations or estimations [CLASSIFICATIONS OF RISK] **Pure Risk-** Also known as Absolute risk **Speculative Risk**- A chance of loss, no loss, or gain [MAIN SOURCE OF LOSS] Personal loss exposures Property loss exposures Liability loss exposures Catastrophic loss exposure Accidental loss exposures **Hazard Risk** - Arises from property, liability, or personnel loss exposures. **Operational Risk** -Arises from people, process, systems, or controls. **Financial Risk -** Arises from the effect of market forces on financial assets or liabilities. **Strategic Risk** - Arises from trends in the economy and society. **Diversifiable Risk** - Also called non -- systematic or particular risk **Non -- Diversifiable Risk** - Also called Systematic Risk or Fundamental Risk **Frequency-** is the number of times losses have happened in given time period, **Severity -** denotes how bad the loss has been in both human and monetary terms. **Peril-** is the direct or immediate cause of loss. **Hazard-** is a condition that increases the possible frequency or severity of a loss, or both.