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

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