Page 11 - EBOOK RISK MANAGEMENT

1.2 Cost Of Risk

Risk cannot be predicted with certainty. Since risk relates to a probable loss, there

is a cost associated with managing risks and incurring losses. Total cost of risk is

the sum of all aspects of an organization's operations that relate to risk, including
administration costs, risk control costs, mitigation costs, losses and transfer costs.

Any situation or circumstance tend to be riskier if it has higher frequency of loss to
happen and higher severity of loss in.

Figure 1.1 Examples of Cost of Risk

1.3 Peril, Hazard and Loss

Peril

RISK

Loss Hazard

Figure 1.2 Peril, Hazard and Loss

2