Page 14 - RISK Management IC86 Ebook
P. 14
Risk Management
The Cost of Risk
l The costs imposed by the existence of risk can be identified
in three separate areas :
Cost of the loss
n This includes both direct and indirect costs.
n Direct costs being those immediately attributable to the
event and indirect costs being the vice versa.
Costs of Handling Risk
n Time spent on identification, analysis and negotiation of
insurance covers. The additional monetary costs of loss
prevention and reduction together with the costs of
consultancy fees .
Costs imposed by Risk
n Because we live in an uncertain world, individuals are
willing to pay amounts in excess of the sums which they
stand to lose, on average, in the long term i.e. over their
lifetime. This is known as the expected value of loss.
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