Risk Management PDF: Risk management is a scientific approach to dealing with pure risks by anticipating possible accidental losses and designing and implementing procedures that minimize the occurrence of loss or the financial impact of the losses that do occur. Risk Management is a process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures. A loss exposure is any situation or circumstance in which a loss is possible, regardless of whether a loss occurs.
–E.g., a plant that may be damaged by an earthquake, or an automobile that may be damaged in a collision
Risk: a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for
Classification of Risk:
Pure risk and speculative risk
Pure risk: the situations that involve only the chance of loss or no loss
Speculative risk: a situation in which there is a possibility of loss, but also a possibility of gain
Risk management has objectives before and after a loss occurs
Pre-loss objectives:
Prepare for potential losses in the most economical way
Reduce anxiety
Meet any legal obligations
Post-loss objectives:
Survival of the firm
Continue operating
Stability of earnings
Continued growth of the firm
Minimize the effects that a loss will have on other persons and on society.
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