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RISK AND RISK MANAGEMENT

PRESENTED BY :DEVANSHI PANDA - 38

SREEMOTI SENGUPTA - 73

SONALIKA DAS - 113KALPITA MAHAPATRA- 119

ANSULA MOHANTY - 180



RISK

It is defined as an uncertainty consulting theconcurrency of the loss.

Categorized into two types:

Objective Risk Subjective Risk

Objective Risk:

It is a variable of actual loss from excepted

loss. Subjective Risk:

Based on persons mental conditions or stateof mind.





SOME RELATIVE TERMS OF RISK

PERIL:

Defined as a cause of loss.

Hazard:

It is a condition that creates or increasethe chance of loss.

It is again divided into 4 types:

Physical

Moral

Morale

Legal



Physical:

physical condition that increases the chance of loss.

Moral:

It is dishonesty or character defect in an individual thatincreases the frequency or severity of loss.

Morale:

It is the carelessness or indifferent to a loss .

Legal:

It refers to the characteristics of the legal system orregulatory environment that increases the frequency orseverity of the loss.



CATEGORIES OF RISK



Fundamental Risk:

It is defined in which effect the entireeconomy or large no. of persons or groups within

the economy. Particular Risk:

It effects only the individuals not the theentire community.

Enterprise Risk:It is a relatively new term that

encompasses all major risk faced by a businessnorm.



Speculative Risk:

It is a situation in which either profit or loss is possible.

Pure Risk:

It is defined as a situation in which there are only thepossibility of loss and no loss.

There are different types of risk exist which are as follows:

Personal Risk:

It directly effects an individual.

Property Risk:

Under this risk contains direct loss and indirect loss.



Direct loss:

It is a financial loss that results from the physicaldamage ,destruction or theft of the property.

Indirect loss:

It is the financial loss that results indirectly from theoccurrence of the direct physical damage or theft.

Liability Risk:

It is another type of pure risk that most person faceunder legal system, that one can be held legally liable forsomething that results in bodily injury or property damage.





Objectives of Risk

Management: Pre loss :

The firm should prepare for potential losses in themost economical way.

Reduction of anxiety Meet any legal obligation.

Post loss:

Survival of the firm

Continue operating

Stability of earning

Continue growth of the firm

Minimize effects that a loss will have on otherersons and societ .



Steps in Risk Management

Process

Identify loss exposures: This step involvespainstaking analysis of loss exposures like

• Property Loss Exposure

• Liability Loss Exposures

• Business Income Loss Exposures

•

Human Resource Loss Exposures• Crime Loss Exposures

• Employee Benefit Loss Exposures

• Foreign Loss Exposures



There are five methods of identifying lossexposures.

I. Risk Analysis Questionnaires

II. Physical InspectionIII. Flowcharts

IV. Financial Statements

V. Historical Loss data

Analyze the loss exposure: It involvesestimation of frequency & severity of loss.

Loss Frequency: Probable number of lossesthat may occur during some given time period.



Loss Severity: It refers to the probable size ofthe losses that may occur.

Both maximum & maximum probable loss are

estimated. Maximum possible loss is the worst loss that

could happen to a firm during its lifetime.

Maximum probable loss is the worst loss thatis likely to happen.

Select appropriate techniques for treatingthe loss exposures:

It broadly consist of two techniques:



1. Risk Control: It describes techniques for reducing thefrequency or severity of loss.

Avoidance: It means a certain loss exposure is

never acquired , or an existing loss exposure isabandoned.

Loss Prevention: It refers to measures thatreduce the frequency of a particular loss.

Loss Reduction: It refers to measures that reducethe severity of a loss after it occurs.

2. Risk Financing: It refers to the techniques that provide

funding of losses after they occur.



Retention : It means that the firm retains part or alllosses that can result from a given loss. It can be eitheractive or passive.

Noninsurance Transfers: Noninsurance transfers aremethods other than insurance by which a pure risk andits potential financial consequences are transferred toanother party.

Commercial Insurance: Commercial insurance is alsoused in a risk management program. Insurance isappropriate for loss exposures that have a lowprobability of loss but for which the severity of loss ishigh.





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