Risk management is the science and practice of planning in an uncertain world, where
outcomes may be anticipated but never guaranteed of occuring or not occuring. It assumes that people rationally seek to minimise (1) the likelihood of an adverse situation affecting them negatively, (2) their losses should an adverse situation occur, and (3) the costs and imposts incurred in implementing prevention to lessen or mitigate
risks.
Yet risk, while being a concept that can be objectively (if not entirely accurately) measured, is usually misinterpreted by the attitudes, values and incomplete or superficial knowledge of people. More people die of speeding than shark attacks, but one car accident doesn't induce people into suddenly obeying the speed limit in the same fashion as if people start deserting beaches after one unfortunate swimmer is gobbled up by a great white.
Risk management is employed by a variety of professionals, from fund managers with considerable knowledge about the financial status of countries but never certain how they will fare in changing market conditions,
to local government engineers who evaluate the likelihood of accidents occuring in a children's playground. The adoption of a trusted, comprehensive and competently executed risk management strategy should help managers in their duties by reducing overheads and other costs, while protecting the company should bad luck in whatever guise surfaces.
For example, consider a car park management company that rents out a few acres of spare concrete, paints some lines on the ground, and rents out car bays to commuters. If the company is responsible for protecting the cars that use the facility, would roving security patrols be the cheapest and most effective way to secure the premises ? Are two sets of boom gates more effective than annoying ? Should car bays be cleaned of dropped oil every time a vehicle vacates, or would it just be okay if the manager gets a public liability insurance policy that provides a pay-out every time somebody slips over ? At the very least, a risk management strategy could save you from a manslaughter charge if something bad eventuated.
Some terms for words you would otherwise think are quite pedestrian, but in fact succintly describes intangible concepts:
Pure Risk: Risks with two outcomes - something bad will happen, or nothing will happen (e.g.: the Rhine will flood this autumn).
Speculative Risk: Risks with three outcomes; either a gain, a loss, or nothing happens (e.g.: by the end of trading Walmart's share price will go up, down or stay steady)
Hazard: A specific circumstance that increases the likelihood of a negative outcome, or aggrevates the loss if a negative outcome occurs (e.g.: a rainy day that causes the racetrack to soften, and you've just placed a bet on the heaviest or clumsiest horse)
Risk factor: Characteristics that increases the likelihood of a negative outcome, or aggrevates the loss if a negative outcome occurs (e.g.: heat, dryness and wind speed are risk factors for bushfires).
Source of Risk: The environment where hazards and risk factors emerge from, which will determine the outcome (e.g.: the weather patterns that creates rain, which might reduce not just the likelihood of a bushfire, but also the odds of your horse winning).
Peril: The actual cause of loss (e.g.: infection is a peril derived from an unhygenic hospital environment).
Opportunity: The actual gain achieved in a positive outcome (e.g.: finding a hidden chest of gold is an opportunity derived from treasure hunting).
Exposure: How often or to what extent does a person subjects himself to sources of risk (e.g.: does a soldier spend two weeks or six months serving in a war zone ?)