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Showing posts from December, 2011

The Concept of Risk Management

Risk management is the systematic identification, analysis and economic control of the risks whichthreaten the resources or earning powers of an enterprise.   This definition has the main important elements. These elements are: (i)                   identification (ii)                 analysis (iii)                economic control Before we can measure risks, we first have to identify it and before we can know what to do with risk, we must first assess their possible impact on the enterprise.  The concept of risk management is broader than insurance. Insurance is an aspect of risk management.  It is one of the methods of managing risk.  Insurance only deals with insurable risks, that is, the pure risks.  If you would remember, we said in an earlier chapter that insurance only deals with pure risks.  Risk management on the other hand deals with the pure risks that are not insurable. This means that insurance only deals with the insurable risks, that is, the pure risks, while risk manage

The Burden of Risk

The Burden of Risk The presence of risks saddles on the individual and society some measure of social and economic pains.  Every risk holds the prospect of actually resulting in some economic losses and in addition some social pains. When a house is destroyed by fire, or a vehicle is ruined in a crash, or a breadwinner dies or money is stolen or you negligently injure a person or damage his property, financial losses would be involved.  In addition to the financial cost of losses brought about by risk, there is the pain of fears and worries resulting from the uncertainty as to whether or not loss would occur.  All these underwrite the need why a prudent individual and society should prepare for a possible occurrence of loss.  The greatest burden of risk, therefore is loss. Risk put three major burden on the society: (i)                   The creation of adequate contingency (ii)                 Deprivation of society of needed goods and services (iii)                The creation of per


T here are different types of risk.  The most important types of risk include: (i)                   Pure Risk (ii)                 Speculative Risk (iii)                Particular Risk (iv)               Fundamental Risk (v)                Static Risk (vi)               Dynamic Risk. PURE RISK Pure risk is a situation that holds out only the possibility of loss or no loss or no loss.  For example, if you buy a new textbook, you face the prospect of the book being stolen or not being stolen.  The possible outcomes are loss or no loss.  Also, if you leave your house in the morning and ride to school on your motorcycle you cannot be sure whether or not you will be involved in an accident, that is, you are running a risk.  There is the uncertainty of loss.  Your motorcycle may be damaged or you may damage another person’s property or injured another person.  If you are involved in any one of these situations, you will suffer loss.  But if you come back home safely without any incident, th