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Risk and Uncertainty

Introduction

All businesses face risk. Risk is the variability of possible returns.

Risk management is important in a business. It is the process of understanding and
managing the risks that an organisation is inevitably subject to.

Risk Uncertainty

 There are a number of possible  Uncertainty: there are a number
outcomes and the probability of of possible outcomes but the
each outcome is known. probability of each outcome is
not known.

For example, based on past For example, the same oil company
experience of digging for oil in a may dig for oil in a previously

particular area, an oil company may unexplored area. The company
knows that it is possible for them to
estimate that they have a 60% chance either find or not find oil but it does
of finding oil and a 40% chance of not not know the probabilities of each of
finding oil. these outcomes.

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