Definition of risk
<\/strong>Risk is present in all areas of human activity whenever people are unable to control or accurately predict the future. Risk plays a particularly large role in business activity. Colloquially, the term risk is used when considering: accidents, unforeseen events, or the possibility of incurring a loss.<\/p>
Risk is the threat that a specific event, action, or lack of action will negatively affect an organization’s ability to achieve its set goals. Risk:
• concerns every organization – commercial, governmental, non-profit
• accompanies action or lack of action
• comes from the outside world or from within the organization
• includes negative consequences and missed opportunities (lost benefits).<\/p>
Types of risk
<\/strong>Risk, depending on the adopted classification criterion, can be divided into:
1. Based on the possibility of controlling the risk:
• systematic risk (also referred to as fundamental or market risk) refers to the general public or groups of people, and therefore cannot be controlled by any single person. This risk is associated with the forces of nature and results from the economic conditions of a given market and the global market. Examples of systematic risk include changes in weather, inflation, and mass unemployment. These phenomena affect individuals but are independent of them. Only parliament, the government, or the central bank (for example, by changing interest rates), as well as supranational structures, can attempt to influence the level of this risk
• specific risk (also known as individual or unsystematic risk) is associated with future events that we can partially control or predict. It is linked to individual decisions. For example, when owning a car – with the decision to purchase theft and collision insurance (AC); when investing in the stock market – with the decision to create a portfolio of diverse investment deposits that are negatively correlated with each other. The causes of specific risk may include, among others: company management, competition, availability of raw materials, liquidity, company bankruptcy, and the level of operating and financial leverage.<\/p>
2. The division into speculative risk and pure risk is based on distinguishing alternatives. If the only possible alternative to the current state is the occurrence of damage, then such a situation is defined as a case of pure risk. However, if unknown future events can cause both losses and profits, then such a situation is referred to as speculative risk. It is assumed that only pure risk can be insured. Speculative risk cannot be the subject of insurance.<\/p>
3. Based on the uncertainty criterion, the following are distinguished: risk of uncertainty of occurrence, effect, time, and place. The risk of uncertainty should be understood as the very fact of uncertainty regarding the results that it entails when it occurs, and the inability to determine the place and time of its occurrence.<\/p>
4. Based on the changing environment and ongoing technical progress:
• static risk exists independently of technical progress and is associated with the occurrence of phenomena such as storms, gales, cyclones, or volcanic eruptions
• dynamic risk is associated with all changes of a technical, economic, civilizational, or organizational nature<\/p>
5. Based on insurance practice:
• property risk refers to threats to property assets
• personal risk refers to threats causing harm to personal goods (loss of life, health, ability to work).<\/p>
The article comes from the magazine “Logistyka” 5/2008.<\/p>