Risk can be defined as a chance of danger, damage, loss, injury, or any other undesired consequences. Most authors agree that RISK involves 2 elements, possible consequences (impact) and associated uncertainty (probability of occurrence). The probability of p is defined as the fraction of times the accidental event A occurs if the activity considered were repeated an infinite number of times. Thus, probability can be used as a measure of uncertainty which is defined as the perceived inability to predict something accurately. In addition, when assessing and managing RISK, we need to encounter both the consequences of losses and the probability of risky events.
Another definition of RISK is also involving an objective of something. RISK is perceived as an uncertain event or set circumstances which, should it occur, will have an effect on achievement of one or more objectives. In project management, RISK refers to anything that threatens the successful achievement of a project’s goals. Thus, besides consequences and uncertainty of occurrence, their definition also takes into account an objective / goal of the project.
RISK has a source, known as a risk source or hazard. In dictionary, hazard is defined as a source of danger. So, hazard relates to the source of harm, while risk is the probability of the harm being experienced. Therefore, some authors defined RISK as a combination of hazard and probability of hazard occurrence, where hazard is defined as the degree of harm to human beings, property, society or environment.
There are several types of risks, namely:
• Supply Risks
• Operational Risks
• Demand Risks
• Security Risks
• Macro Risks
• Policy Risks
• Competitive Risks
• Resource Risks
Although, there are many definitions of RISK, the following 3 components are present in all conceptualization of risk:
• What are the potential losses? -> If the risk realized, what losses will result? / What can happen? / what can go wrong?
• How likely are those losses? -> the probability/likelihood of the loss being realized
• What are the consequences of those losses?
references: Kaplan, S., & Garrick, B. J. (1981). On the quantitative definition of risk. Risk analysis, 1(1), 11-27. Aven, T., & Heide, B. (2009). Reliability and validity of risk analysis. Reliability Engineering & System Safety, 94(11), 1862-1868. Chen, Y., Probert, R. L., & Sims, D. P. (2002, September). Specification-based regression test selection with risk analysis. In Proceedings of the 2002 conference of the Centre for Advanced Studies on Collaborative research (p. 1). IBM Press. Nishat Faisal, M., Banwet, D. K., & Shankar, R. (2007). Information risks management in supply chains: an assessment and mitigation framework. Journal of Enterprise Information Management, 20(6), 677-699.