Page 10 - EBOOK RISK MANAGEMENT

1.0 NATURE OF RISKS

1.1 Risk and Uncertainty

Risk can be defined as the combination of a probability of an event and its
consequences. Risk surround us everywhere and every minutes of the day. Risks

include circumstances or the possibility of occurrence that resulting in loss will
happen which the actual outcome varies from the expected outcome that caused

by external or internal vulnerabilities and may be avoided through pre-emptive
action.

Uncertainty is a situation in which potential outcome cannot be predict. We
tend to distinguish between risk and uncertainty in terms of the availability of

probabilities. Risk is when the probabilities of the possible outcomes are known (such

as when tossing a coin or throwing a dice) while uncertainty is where the
randomness of outcomes cannot be expressed in terms of specific

probabilities. Corona Virus (Covid-19) pandemic situation is an example of making

decisions under uncertainty. When the pandemic first hit, there was a lot of
uncertainty. As an example, people didn’t know how to safeguard theirselves, how

to continue their daily routine, what action should be taken and many more.

1.1.1 Risk versus Uncertainty

Table 1.1 Risk versus Uncertainty

Risk Uncertainty
The probability of gain or lose A situation where the future events
Definition
something worthy is known as risk are not known.
Ascertainment Can be measured Cannot be measured

Outcome Probability of outcome is known Probability of outcome is unknown
Control Controllable Uncontrollable
Minimization Yes No
Probabilities Assigned Not Assigned

Can purchase insurance
Insurance Can’t purchase insurance
protection

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