What is risk management?
Risk management is the identification, assessment and prioritisation of risks, followed by the coordinated and economical application of resources to minimise, monitor and control the probability of a risk occurring or to minimise their impact.
Financial risks are risks where the outcome of an event can be measured in monetary terms. This means the loss can be assessed and a dollar value can be given to the loss, for example, property damage arising from a storm or fire.
Non-financial risks are risks where the outcome cannot be measured in monetary terms. These risks could be based on a decision such as the choice of a car based on colour or choice of career, making it difficult to give these risks a dollar value.
Pure risks are those where the only possible outcome will be a loss or break-even situation, never a favourable outcome. Example of pure risks are bushfires, flooding and theft.
Speculative risks can be taken on voluntarily and have a possibility to result in a gain or profit. With no intent to make a loss, these risks can include gambling or investing in shares.
Fundamental risks generally arise from either natural phenomenon or social phenomenon such as hurricanes, tsunamis or earthquakes or war, unemployment or financials crises.
Particular risks usually arise from the behaviours or actions of individuals or a group. These risks can be caused by such things as negligence, error in judgement or disregard for the law. They include vehicle accidents, burglary or arson.