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5.7 - Coggle Diagram
5.7
Risk & Uncertainty
(Attitude to Risk)
Risk
The possibility of an event occurring that has a perceived adverse consequesnces
Risk = (Probability of harm) * (Severity of harm)
Frank Knight (1921) believe that RISK only applies to situations where probabilities of an event can be precisely calculated
and the adverse consequences determined
Risks are quantifiable and knowable
Risk can be defined in relation to objectives (Hilsson, 2004)
Hillson defines Risk as
"uncertainty that if it occurs could affect one or more objectives"
or "an uncertainty that matters"
Uncertainty
some uncertainties have associated risks but not all uncertainties are risks
True uncertainty is not susceptible to measurement
Uncertainty applies to situations where we cannot know all the information we need to set the odds of an event
All risks are uncertainties but NOT all uncertainties are risks
Hillson (2010)
Uncertainties that adversely affect objectives are risks 'threats', while, uncertainties that help us achieve objectives if they occur are ' opportunities' (Hillson, 2004)
suggeted that risk is not always negative.
When we identify all associated risks, we need to look for uncertainties that might help achieve objectives also
In Risk Identification process , it is essential to differentiate between
Causes of risks, genuine risks and effects of risks:
Genuine Risks
Risks are uncertainties, which if they occur, would affect the objectives, either negatively (threats) or positively (opportunities)
Effects of Risks
Unplanned variations from objectives
Causes of Risks
Definite events or sets of circumstances which exist in the environment, which give rise to uncertainty
e.g. lack of skilled personal, the usage of new unproven technology, etc.
Using
Risk Metalanguage
help structure risk statements:
“As a result of <definite cause>, <uncertain event> may occur, which would lead to <effect on objective(s)>.
Understanding Attitudes to Risks
Attitudes to risks are a key component of Decision making (Ian, 2022, unit 5.7)
People and Organizations attitude to risk are classified as:
Risk Neutral
People who are rather ambivalent to risk
Risk Seeking
People who are seen to embrace uncertain events, seeking it as an opportunity
Risk Averse
A person who tends to avoid uncertain events to minimize risk
People tend to be risk averse as they get older (Diaz & Esparcia, 2019)
Emotions & Risks
Risk-as-feelings (Loewenstein et al., 2001)
(Sobkow et al., 2016) suggested that negative emotions and psychological stress increase the percesptions of risk and influences decision making