RISK MANAGEMENT PROCESS

Risk concerns the expected value of one or more results of one or more future events.
Technically, the value of those results may be positive or negative. However, general usage tends
focus only on potential harm that may arise from a future event, which may accrue either from
incurring a cost ("downside risk") or by failing to attain some benefit ("upside risk").
Definitions of risk
There are many definitions of risk that vary by specific application and situational context. The
widely inconsistent and ambiguous use of the word is one of several current criticisms of the
methods to manage risk.[4]
In Risk Management the term risk is commonly misused in place of a hazard. This is not correct,
Risk simply put is the probability of something happening, rather it good or bad. In Risk
Management the Risk Matrix has become used for determining levels of risk, however this must
be done with care because the term "risk" is no longer a probability; rather it becomes a number
or factor for determining a relative risk level. This has nothing to do with probability.
One set of definitions presents risks simply as future issues which can be avoided or mitigated,
rather than present problems that must be immediately addressed. E.g. "Risk is the unwanted
subset of a set of uncertain outcomes." (Cornelius Keating)
The risk is then assessed as a function of three variables:
1. the probability that there is a threat
2. the probability that there are any vulnerabilities
3. the potential impact to the business.
The two probabilities are sometimes combined and are also known as likelihood. If any of these
variables approaches zero, the overall risk approaches zero.
The management of actuarial risk is called risk management.
Risk V/S Uncertainty

Uncertainty: The lack of complete certainty, that is, the existence of more than one possibility.
The "true" outcome/state/result/value is not known.
Measurement of uncertainty: A set of probabilities assigned to a set of possibilities. Example:
"There is a 60% chance this market will double in five years"
Risk: A state of uncertainty where some of the possibilities involve a loss, catastrophe, or other
undesirable outcome.
Measurement of risk: A set of possibilities each with quantified probabilities and quantified
losses. Example: "There is a 40% chance the proposed oil well will be dry with a loss of $12
million in exploratory drilling costs".
Risk management process
The risk management process consists of a series of activities that, when undertaken in sequence,
enable continual improvement in decision making. It consists of following elements.
C Identification

Planning

Mapping out

Defining a framework

Developing an analysis

Mitigation