Risk is a common word used in man’s endeavors. It is a term people use in explaining some unknown future event in life. Risk is the basic feature of life, surrounding everything about man.
Risk concept.
A chat with a farmer will expose his worries about poor rainfall, excessive sunshine, rising cost of farm inputs and many other things. Again there exists a great deal of anxiety and grief in life when some unwanted events happen like earthquake major fire accidents, explosion of valued engineering plants and boilers, multiple collision on motorways, air disaster or plane crash, oil spillage and armed robbery.
The unwanted events can be
legion. What about the fate of the unemployed, the disabled, the aged people,
widows, orphans and the less privileged.
The situation is not different in formal and informal
organizations. The characters of either organization include taking risks
tackling problems and utilizing the organizations the following events are
common: scarce resources, injuries to third parties, social conflicts, fraud,
reorganizations, strike actions damage to or loss of assets and death of key
men.
There are many things to be said on risk. There are many illustrations to offer on the all-inclusive nature of risk in life. Suffice it to say that risk exists where the future is unknown. It represents both desirable events and undesirable events. It is a desirable event when one intentionally initiates the uncertain things in order to better his socio-economic wellbeing.
For example, the government in quest of facilitating
economic and political and political infrastructures, spends a lot of resources
in developing infrastructures, establishing corporations, constructing bridges
and roads, sponsoring scientific researches and many others. The same applies
to households and corporate desired objectives. Even so, an individual accepting
an employment or job offer has desired risks.
Risk becomes undesirable when it produces negative results.
It is that situation when an event occurring is unwanted because it results in
loss of life and property. For a business organization, it is “any situation
arising out an organization’s activities which can give rises to damages
injury, liability or impairment of growth in social, moral and financial
terms”.
The exposures to risk may either be by an Act of God, which is natural or self-imposed. The exposure to risk by act of God have to do with events such as earthquake, food, and destruction by lightning and thunders.
Those that are self-imposed result from man’s decision or choice say
technological development, choice of system of government economic system,
choice of job or occupation, and choice of activities to do. The resultant
uncertainties capable of generating losses of different kinds; financial,
social and health, are simply generated by the chosen activity.
Definition of Risk.
Risk is at the center of life itself. Though many people
from different walks of life are interested in the phenomenon risk, and this
actually explains the multitude definitions which have been offered by many
writers. This has resulted in no one definition of risk acceptable to everyone.
Economists postulating economic models to solve economic
problems always maintain that resources are scarce, explaining market structure
and concluding with cetaris paribus (all things being equal). That “if” in
their solution to economic problems captures the “risk” for the economists who
cannot be certain of the future event.
Medical doctors are concerned with diagnosing and prescribing drugs or treatment of health problem. They are faced with the possibilities of wrong diagnosis and surgical mishaps, say due to complications, unwanted behavior of patient or inadequate experience and inability to certify objectively the efficacy of the drugs administered.
Another problems or possibility is non availability of drugs for the treatment
of symptoms identified. To them the risk revolves about the symptom being the
real problem of the patients and the availability of technology for the
treatment. Hence the slogan, Doctors prescribes, God heals.
Honestly, the term risk has been used in different ways by different persons. For example, a layman uses the word risk in connection with danger; lawyers and solicitors use it in connection with wrong opinion; architects and engineers use it in association with faulty design.
Other
examples includes the investors who thinks about risk in connection with his
investment, that is rate of return on investment, the mathematicians and
statisticians will describe risk in terms of probability concept that is
average concepts. This refers to the relative variation of the actual event
from the expected event.
And the students who viewed risk from “chance of failure in
examination”. However, a number of definitions of risk have been put forward by
scholars over the years. Some of these definitions are contained in risk and
insurance textbooks, some are just dictionary meanings and others are
derivatives from other definitions.
Risk can be defined as;
·
The uncertainty of loss
·
A hazardous undertaking
·
The chance of mishaps
·
The financial loss
·
Unwanted and uncertain event
·
The objective doubt concerning the outcome in a
given situation.
·
The possibility of an unfortunate occurrence.
According to Mordi (1988:5) it is futile to debate on which
of the definitions of risk is the right one. They all serve their purpose to
identify the fact that in risk;
There is an element of uncertainty because of the inability
to foresee all the results of an action, and the result of that action can be
against the interest of the actors thus leading to a loss.
There are four reasons for the choice of this definitions:
1.
It is brief.
2.
It avoids introducing too many undefined and
possibly ambiguous words such as doubts, objectives, possibilities, and hazard.
3.
It is restricted to two ideas of uncertainty and
loss.
4.
And, it avoids situation where no likelihood of
loss exists and also those situation which will definitely happen.
The term risk in insurance.
Insurers used the word risk in 4 ways;
·
The subject-matter of insurance that is the
liability. Life, limb, object or the thing being insured.
·
The insured peril. This is the cause of a loss
or the event that can bring about the loss such as fire, tornado, windstorm,
accident, theft, explosion and negligence.
·
The value at risk in a given insurance policy.
This is the maximum amount the insurer can be liable for in a given contract of
insurance and
·
Unwanted and uncertain future event.