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Risk Management

Risk: defined as uncertainty about outcomes that can be either positive or negative.

Hazard risk: risk of accidental loss, including the possibility of loss and no loss.

Loss exposure: any condition that presents a possibility of loss, whether not a actual loss occurs.

Risk management: the process of making and implementing decisions that will minimize the adverse effects of accidental losses on an organization. (this is what risk managers do)

Making these decisions involves the six step risk-management process.
1. Identifying loss exposures
2. Analyzing loss exposures
3. Examining the feasibility of risk management techniques
4. Selecting the appropriate risk management techniques
5. Implementing the selected risk management techniques
6. Monitoring the results and revising the risk management program

Implementing these decisions involves the four management functions.

1. Planning
2. Organizing
3. Leading
4. Controlling

These four functions are usually performed as part of an overall risk management program.

The risk management process is ongoing because past choices of risk management techniques must be continually re-evaluated because of changes in the following:
1. An organization’s resources and activities and its resulting additional exposures to accidental loss.
2. The cost of alternative risk management techniques.
3. The organization’s legal requirements.
4. The organization’s goals.
5. The economic environment.


Risk management costs and benefit.

Categories of costs imposed by accidental losses, both actual and potential

1. Reduction in property value, income, earning capacity, or quality of life because of damage, destruction or injury.
2. Loss of net benefits that would have been gained from deterred activities, not undertaken because they were judged too risky.
3. Costs of resources devoted to managing accidental losses, that is, resources that could have been put to other use.

The third category...