What Is Risk?

What Is Risk?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Risk refers to the uncertainty that surrounds future events and outcomes. It is an inseparable part of every decision we make or action we take. In general, risk is the potential for unwanted, adverse consequences to occur after some kind of action or inaction. Risks can come from many different sources, including uncertainty in financial markets, threats from project failures, legal liabilities, accidents, or even natural disasters.

Related Questions

1. What are the types of risk?

There are several different types of risk including strategic risk, compliance risk, operational risk, financial risk, and reputational risk. Each of these risks poses a different potential threat to the operations of any organization.

2. What is risk management?

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Risk management is the process of identifying, assessing, and prioritizing risks to minimize, control and monitor the impact of unfortunate events or to maximize the realization of opportunities.

3. What is the role of risk assessment?

Risk assessments play a critical role in the risk management process. Their aim is to quantify or qualitatively describe the risk and, depending on the nature of the potential risk, applicable risk assessments may vary greatly in complexity.

4. How can risks be mitigated?

Risks can be mitigated in several ways. If possible, the risk could be avoided entirely by not engaging in a certain activity. If the risk cannot be avoided, it can be reduced by managing and lowering its impact. Transferring the risk, often through insurance, is also a common method of risk mitigation.

5. What is the difference between a risk and a hazard?

While a risk refers to the potential for something negative to happen, a hazard is something that can cause harm or adverse effects. In other words, a hazard poses a risk.