Page 264 - RISK Management IC 86

Annexure III

Glossary of Risk Management

Risk :
(i) Possibility of loss or exposure to loss, (ii) Probability or chance of
loss, (iii) Peril which may cause loss, (iv) Hazard, or condition which
increases the likely frequency or severity of loss (v) Property or person
exposed to loss (vi) Potential rupee amount of loss, (vii) Variations in
actual losses, viii) Probability that actual losses will vary from expected
losses, (iix) Psychological uncertainty concerning loss.

Analysis of risk :
Process of locating loss exposures, measuring the amount of loss that
exposures can produce, estimating the loss probability, and evaluating
the exposures to determine actions necessary to meet the business (or
family) risk management objective.

Cost of risk :
Expenditures which an entity makes because of its exposures to
accidental losses. Cost of risk can be computed as the sum of retained
losses, plus insurance premiums, plus expenditures for loss control,
plus the administrative cost of operating a risk management
department.

Chance of loss:
The long run relative frequency of a loss, and is best expressed as the
probable number and severity of losses out of a given amount of
exposures, using the probable number of losses times its average
severity as the numerator and the total value exposed to loss as the
denominator when expressed as a fraction.

Degree of risk :
Probable variation of actual experience from expected experience.

Financial risk :
Possibility that a project may fail for lack of adequate capital. This is a
speculative risk, not normally within the scope of risk management
unless potential suppliers of capital are reluctant to venture their
funds because the project involves excessive pure risk.

Foreign exchange risks :
Potential losses to foreign loss exposures arising usually out of
declines in the value of the foreign currency relative to domestic
currency. Foreign exchange risks are speculative risks, not pure risks,
because the exchange rates may change in a favourable direction.

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