What is a risk?
There is a saying that at the centre of what has lead humanity to this level of development over many millennia is not agriculture, technology, or finance but it is a better ability to manage risks. Agriculture, technology and finance came after, more as a second layer of development - but it was risk management that lead us here. Thus, we should thrive to better understand risk management. But, how can we have a better understanding of risk management if we don’t have a good grasp of the concept of risk. So, we should start with a review of risk, so we have a better understanding of what risk is and what it is not.
Definition
There are different ways to define risks. Let’s take a look at a few of them:
Wikipedia defines risk as follows:
Risk is the possibility of something bad happening
I, personally, would take a bit of a system design approach to define risks - that would keep it somewhat generic, but applicable in different system contexts:
Risk is a factor that may contribute towards divergence of an achieved future state from that of an expected/planned future state
Examples of Risks
Below are some general risks that we contemplate about (or ignore) on a regular basis in our day-to-day lives:
The bread toast having burnt due to you being distracted by your friend’s phone call
Due to heavy rains you not able to reach the bus stop in time to catch the bus to school
Due to high demand, you not being able to find a party hall at a reasonable price for your child’s birthday party
Icy conditions resulting in your car to skid and being met with a bad accident
The plane going down and crashing due to bad weather and low visibility
Types of Risks
There may be different ways to categorize risks. I’ll try a few options:
Positive vs. Negative risks - This is based on if the risk has a positive or negative impact.
Schedule risk - A risk that if realized will impact the the schedule of a project or event
Business risk - A risk that if realized will impact a business
Financial risk - A risk that if realized will impact the financials of a business, person or a country
Health risk - A risk that if realized will impact the health of a person, community, population of a city, region or country
Safety risk - A risk that if realized will impact the safety of a person, community, population of a city, region or country
Security risk - A risk that if realized will impact the security of a person, community, population of a city, region or country
Environmental risk - A risk that if realized will impact the envirionment