Skill Web School

Risk is perhaps the most uttered term on human lips. As the life has become more and more risk prone the probability of  uncertainties have increased phenomenally today and uncertainty is the key factor which leads to risk. The irony of fate is that we need carry risks through out our lives as Pierre Corneille says, “To win without risk is to triumph without glory.” and nobody wants to end up his life as a loser in this world!

If we look at the definition, Risk is defined as, The uncertainty of an event occurring that could have an impact on the achievement of objectives. We all set our own objectives and goals and there are every chances of slipping the objective because of such uncertainty factor. We should know that “Only those who will risk going too far can possibly find out how far one can go.”, says T.S. Eliot.

If we want to measure the risk, we must remember that any Risk is measured in terms of consequences, and the impact is always translated into quantifiable terms, the financial losses. Now let us try to analyze the two terms associated with Risk, the uncertainty and loss. Uncertainty can be defined as,  Probably it might happen in the worst possible case and Loss is defined as,  What will be the amount of  loss, if the uncertainty factor comes into reality. Nevertheless, we need to accept the challenges as every living being has got the worry of risks for survival. We must remember the saying of  Albert Einstein,  “The fear of death is the most unjustified of all fears, for there’s no risk of accident for someone who’s dead.”

So, now if we want to derive an arithmetic formula for risk,

Risk is equivalent to the product of Probability and Impact.

So, one needs to calculate the probability of occurrence as well as the impact of losses if that probability really takes place. Let us take a simple example, If you start from a distance of 100 km to catch a train just one hour before the schedule departure of the train and tries to look for public transport, you are taking a huge risk. What you need to do is to immediately calculate the financial losses, in case you miss the train and simultaneously you need to calculate the cost of private transport vehicle and take the decision. Again the decision taking process should not be prolonged, so that by either means, you miss the train.

We will just touch Risk Management here and we will discuss it in details in future. Risk Management is the mechanism to reduce the probability of occurrence and to reduce the impact of such incidents.  But we should not be that defensive that we keep on loosing. After all, no risk, no gain.  As per  Charles Tremper, “The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.”