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Risk is a result of the uncertainty that is inherent in the goals of the organization.
Risk is a combination of the impact of an event and the likelihood of its occurrence.
“Uncertainty is a state associated with an event, its impact, and the likelihood of it
happening ". Everything associated with achievement is never independent of uncertainty.
Vladimir Trbojevic notes that reducing uncertainty does not necessarily directly reduce the
risk, but it is a better approach to prevention.
Confidence is based on the degree of certainty in every process. The degree of certainty can
be known by using risk measurement tools to reduce as much "known uncertainty"as
possible, even if we cannot do anything about the "unknown uncertainties".
Claire Darlington: a degree of certainty can achieved by gaining as much information about a
phenomenon as possible so as to reduce the impact of known uncertainty.
Aquired information of a phenomenon is referred to as ‘known certainty’.
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In the world of medicine, a doctor usually makes decisions based on informed risk. An
example would be a case where a person may need surgery. This surgical decision by the
doctor is taken quickly before the patient's condition gets worse. Based on their experience,
doctors are able to quickly decide what action should be immediately implemented.
While decision-making that is risk based is commonly found in organizations that apply risk
management.
With the implementation of structured risk management, individuals or organizations can
identify, analyze, and evaluate any existing risks, in order to obtain complete information to
assist in more definite decision-making.
Conclusion: Current risk management is the best way to obtain proof of an existing
phenomenon.
Bibliography : International Standard. (2009). ISO 31000: Risk Management - Principles and
Guidelines.
Event Risk or 'Risk Event' can be interpreted as an event that may pose a risk.
Risk is defined in two ways: in the broad sense and in the narrow sense.
1. The definition of risk in a broad sense is an uncertain situationinvolving the possibility of
events (perils) and the possibility of their occurrence (consequences). These possibilities can
result in:
- Loss
- No loss (no loss or achieving break even )
- Gain
2. The definition of risk in the narrow sense is: a result that causes loss (loss).
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Definitions of Risk in general are as follows:
1. Risk is the unpredictability / possibility of an unfortunate event. For example, accidents,
disasters and so forth.
2. Risk is an unpredictable or a distinct trend of actual results with predicted results.
3. Risk is the uncertainty / possibility of loss, break even or profit.
Risk is the underlying uncertainty or doubt about a future outcome.
The different levels of risk are reflected in the words 'possibility' and 'inability to predict'.
Uncertainty
Uncertainty is a core concept of risk. We can say that the concept of uncertainty implies
doubt (which is based on the lack and imperfection of information or knowledge) about the
future.
When we know what will happen, then risk is minimized. We will never always know what
will happen and therefore some things are risky uncertainties.
Risk types
1. Pure risk
Pure risk is an uncertainty because there is only a loss opportunity and not a profit
opportunity. If the risk does not materialize then it does not cause any loss but also does
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not generate any profit. There are only 2 types of consequence of pure risk: loss or
break-even e.g. the possibility of theft, accident or fire.
2. Speculation or Speculative risk
This is risk associated with only two possibilities, namely the opportunity to lose or gain
a profit. An example is an investment by buying shares in the stock exchange.
3. Individual risk
These involve the possibilities that occur in everyday life. e.g. the risks that arise if we
have a house or a car. This risk is divided into three types:
a. Personal risk - a risk that affects a person's capacity or ability to make a profit, e.g. an
accident or job loss.
b. Property risk - the risk of financial loss if we own an object or property e.g the
opportunity of goods being lost, stolen or damaged.Losing something valuable can
be differentiated into two types:
- Direct losses: They occur when your property is lost or damaged.
- Indirect losses (consequential): They are losses incurred by original losses.
An example is when a house is destroyed or damaged by a natural disaster.
c. Liability risk is a risk we may experience or suffer as a liability due to loss or injury to
others. For example, giving compensation if you cause an accident.
Overcoming uncertainty
Overcoming uncertainty lies in ascertaining how much certainty is gained from risk
management by knowing the probability and impact of a certain risk. If the probability of a
risk is known then the decision maker has an increased degree of certainty or confidence in
making a decision.
An increased level of Certainty will thus increase confidence in making decisions.
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Measuring Instruments.
Claire Darlington and Ian Bayne argue that it is difficult to know the degree of certainty in
risk management and that, in fact, we can not do anything about "unknown uncertainties".
One of the tools for measuring risk is determining how much we understand a phenomenon
by reducing as much of the "known uncertainties" as possible.
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For example, in producion or buying decisions, qualitative considerations deal with the
quality of the product or material, the price and its relation to the employment factor, the
image and so on. (as for example) : I once worked in the automobile industry where the
company made cars and was often confronted with the problem of making parts themselves
or buying them from suppliers. Generally, they bought from suppliers because of the high
investment cost to produce some items themselves. For example, car windshields, tires and
rear-view mirrors etc were required. These non-core accessories or products were too
various and thus costly to produce by themselves.
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These are management decisions that occur repeatedly with the same conditions. Usually
patterned with the "if-then (if-then)" condition.
Examples are decisions regarding:
1. Maintenance of vehicles,
2. Monthly Payroll,
3. Overtime cost calculations.
B. Specific decisions:
These are management decisions that do not routinely occur. These decisions concern a
specific problem (special) and need a thorough analysis of information.
This decision is also called a tactical decision. Proper tactical decision making means that the
decisions made meet not only limited goals but also long term goals.
In general, specific decisions can be grouped into;
1) Buying in or Making your own
2) Replacing Fixed Assets
3) Accepting or rejecting special orders
4) Continuing the production process
5) Closing a business segment
6) Determining the allocation of limited economic resources.
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production may result in lay offs; creating a fictitious partner or violating signed contractual
agreements could lead to negative legal action.
References :
1. Esther Tippmann, Pamela Sharkey Scott, Andrew Parker, Boundary Capabilities in MNCs:
Knowledge Transformation for Creative Solution Development, Journal of Management
Studies, 2017, 54, 4, 455Wiley Online Library
3. Stefan Linder, Joel Bothello, Antecedents to Autonomous Strategic Action: What About
Decline?, IEEE Transactions on Engineering Management, 2015, 62, 2, 226