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What are Risks
Risk is a term that refers to an uncertain result with a potential for adverse situation. Risk means a threat, a potential problem, the possibility of failure and lack of success, damage, loss or destruction.

Risk is a term that refers to an uncertain result with a potential for adverse situation. Risk means a threat, a potential problem, the possibility of failure and lack of success, damage, loss or destruction. Risk therefore reflects a degree of uncertainty, i.e. the probability of achieving a result that is different from the expected one.

Risks in an organization are mainly related to surroundings, innovations, changes and resources. Risks can be prevented by appropriate management, the financial impact of risks can be mitigated by insurance.

The notion of risk is related to the notion of uncertainty, which means the possibility of different results, whose probability is not quantified.

The most important characteristics of risk are:

  • Probability of risk - the probability that the risk occurs
  • Level of risk
  • Risk impacts - consequences that occur, if there is a risk situation
  • Predictability of risk - the chance that the risk can be identified in advance and anticipated
  • Degree of suggestibility
    • Suggestible
    • Partly suggestible
    • Not suggestible
  • Relationship to the organization

  • Internal risks - these types of risk can be affected and controlled by the entity, and they manifest within the organization
  • External risks - these types of risk cannot be influenced directly by the entity - these are environmental factors

  • Effects order - of the origin and elimination
    • Primary
    • Secondary - these risk types arise from the elimination of the primary risks
    • Residual – these risk types remain after their elimination. it is a risk that the entity is willing to bear
  • Risk size
    • Low
    • Medium
    • High
  • Rate of acceptance

    • Necessary (required)
    • Tolerable (acceptable)
    • Intolerable (unacceptable)
  • Probability of origin and exposure
  • Improbable
  • Little probable
  • Probable
  • Very likely
  • Almost sure

  • Activity range
    • Systematic - these risk types apply to all businesses
    • Unsystematic - these risk types apply only to the particular business field

Breakdown of risks - classification of risk types within the organization

Risk and uncertainty comparison (Adapted from Rafferty 1994), Corporate Risk Management, Tony Merna, Faisal F. Al-Thani, 2007:

Dimension

Risk

Uncertainty

Measure

Quantifiable

Non-quantifiable

Methods

Statistical assessment

Subjective probability

Data

Hard data

Informed opinion

Related terms and methods:

Related management field:

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Last update: 27.10.2015

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