Introduction to risk
Introduction to risk
Risk is the potential of loss (an undesirable outcome, however not
necessarily so) resulting from a given action, activity and/or inaction. The
notion implies that a choice having an influence on the outcome sometimes
exists (or existed). Potential losses themselves may also be called
"risks". Any human endeavour carries some risk, but some are much
riskier than others.
Risk can be defined in six different ways
1. A probability
or threat of damage, injury, liability, loss, or any other negative occurrence
that is caused by external or internal vulnerabilities, and that may be avoided
through pre-emptive action.
2. Finance: The
probability that an actual return on an investment will be lower than the
expected return. Financial risk can be divided into the following categories:
Basic risk, Capital risk, Country risk, Default risk, Delivery risk, Economic
risk, Exchange rate risk, Interest rate risk, Liquidity risk, Operations risk,
Payment system risk, Political risk, Refinancing risk, Reinvestment risk,
Settlement risk, Sovereign risk, and underwriting risk.
3. Food
industry: The possibility that due to a certain hazard in food there will be a
negative effect to a certain magnitude.
4. Insurance: A
situation where the probability of a variable (such as burning down of a
building) is known but when a mode of occurrence or the actual value of the
occurrence (whether the fire will occur at a particular property) is not. A
risk is not an uncertainty (where neither the probability nor the mode of
occurrence is known), a peril (cause of loss), or a hazard (something that
makes the occurrence of a peril more likely or more severe).
5. Securities
trading: The probability of a loss or drop in value. Trading risk is divided
into two general categories: (1) Systemic risk affects all securities in the
same class and is linked to the overall capital-market system and therefore
cannot be eliminated by diversification. Also called market risk. (2)
Unsystematic risk is any risk that isn't market-related or is not systemic.
Also called non market risk, extra-market risk, or unsystematic risk.
6. Workplace:
Product of the consequence and probability of a hazardous event or phenomenon.
For example, the risk of developing cancer is estimated as the incremental
probability of developing cancer over a lifetime as a result of exposure to
potential carcinogens (cancer-causing substances).
Introduction to risk management
Risk management is the identification,
assessment, and prioritization of risks (defined in ISO 31000 as the effect of
uncertainty on objectives, whether positive or negative) followed by
coordinated and economical application of resources to minimize, monitor, and
control the probability and/or impact of unfortunate events or to
maximize the realization of opportunities. Risks can come from uncertainty in
financial markets, project failures (at any phase in design, development,
production, or sustainment life-cycles), legal liabilities, credit risk,
accidents, natural causes and disasters as well as deliberate attack from an
adversary, or events of uncertain or unpredictable root-cause. Several risk
management standards have been developed including the Project Management
Institute, the National Institute of Standards and Technology, actuarial
societies, and ISO standards. Methods, definitions and goals vary widely
according to whether the risk management method is in the context of project
management, security, engineering, industrial processes, financial portfolios,
actuarial assessments, or public health and safety.
Risk management is the identification,
assessment, and prioritization of risks (defined in ISO 31000 as the effect of
uncertainty on objectives, whether positive or negative) followed by
coordinated and economical application of resources to minimize, monitor, and
control the probability and/or impact of unfortunate events or to
maximize the realization of opportunities. Risks can come from uncertainty in
financial markets, project failures (at any phase in design, development,
production, or sustainment life-cycles), legal liabilities, credit risk,
accidents, natural causes and disasters as well as deliberate attack from an
adversary, or events of uncertain or unpredictable root-cause. Several risk
management standards have been developed including the Project Management
Institute, the National Institute of Standards and Technology, actuarial
societies, and ISO standards. Methods, definitions and goals vary widely
according to whether the risk management method is in the context of project
management, security, engineering, industrial processes, financial portfolios,
actuarial assessments, or public health and safety.
Types of risks in automobile sector
- Emission
Norms
- Production
Design
- Procurement
Risk
- Natural Risk: After the earthquake’s
occurrence on March 11, 2011, Toyota temporarily suspended operations at
all of its domestic factories due to damage to social infrastructure
including energy supply, transportation systems, gas, water and
communication systems caused by the earthquake, shortages of parts from
suppliers, and damage sustained by some subsidiaries of Toyota in regions
adjacent to the disaster zone.
- Competition Risk: Automobile companies
face intense competition from other manufacturers in the markets in which
they operate. Although the global economy is gradually recovering,
competition in the automotive industry has further intensified amidst
difficult overall market conditions.
- Environmental
Risk
- Emission
Norms
- Production
Design
- Procurement
Risk
- Natural Risk: After the earthquake’s
occurrence on March 11, 2011, Toyota temporarily suspended operations at
all of its domestic factories due to damage to social infrastructure
including energy supply, transportation systems, gas, water and
communication systems caused by the earthquake, shortages of parts from
suppliers, and damage sustained by some subsidiaries of Toyota in regions
adjacent to the disaster zone.
- Competition Risk: Automobile companies
face intense competition from other manufacturers in the markets in which
they operate. Although the global economy is gradually recovering,
competition in the automotive industry has further intensified amidst
difficult overall market conditions.
- Environmental
Risk
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