2. Risk is the possibility of the actual return being different from the expected
return.
Risk is the uncertainty related to the happening of an economical loss.
The Oxford Dictionary defines risk as the exposure to danger, harm, or loss.
3. Risk can be generally classified into two.
1. Systematic / Unavoidable Risk
2. Unsystematic/ Avoidable Risk
Systematic / Unavoidable Risk
Systematic risk refers to the risk which is associated with the market or market
segment as a whole. It is uncontrollable in nature.
It includes changes in the economy, changes in price level, consumer taste, changes
in technology etc.
4. Unsystematic/ Avoidable Risk
Unsystematic risk refers to the risk associated with a particular security, company
or industry. It is controllable.
It includes personal risk, property risk, liability risk etc.
Beside above classification of risk, there are few other types of risk:
Static risk
Dynamic risk
Business risk
Financial risk
Non-financial risk
Objective risk
5. Risk management is the process of identifying, assessing and controlling
threats to an organization's capital and earning capacity. These threats, or
risks, could originate from a wide variety of sources, including financial
uncertainty, legal liabilities, strategic management errors, accidents and
natural disasters.
Risk Management is the process of identifying and migrating risk.
Risk management is the process of evaluating the chance of loss or harm
and then taking steps to combat the potential risk.
6. According to CIMA ‘‘A process of understanding and managing the
risks that the entity is inevitably subject to in attempting to achieve
its corporate objectives.’’
7. 1. It is a scientific approach
2. It is function of management
3. It deals with insurable (pure risk) and uninsurable risk
4. It emphasizes on reducing the cost of handling risk
8. To create the right corporate policies and strategy.
To manage men and machines (processes) effectively.
To evaluate the risks confronted by a business.
To effectively handle, spread , monitor and insure the risks .
To introduce various plans and techniques to minimize the risks.
To give advices and suggestions for handling the risks.
To create risk awareness among the people.
To avoid cost, disruption and unhappiness relating to risks.
To select the appropriate technique or method to manage the risks.
10. Risk avoidance : Elimination of all possible risk.
Risk reduction : Reduce the consequence of risks.
Risk sharing : Sharing of risk among parties involved.
Risk retaining : Companies will often retain a certain level of risk.
11. Enhanced Risk Decision Making.
Accelerated Identification of Risks.
Stronger Link between Growth, Risk and Return.
Reduced Costs and Expenses.
Reduced Operational Surprises and Losses.
Enhanced Management of Interrelated Risks.