Lecture 1 - BRM 2101 Defination and Classification of Risk.pptx

Lecture 1 - BRM 2101 Defination and Classification of Risk.pptx

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BRM 1201 - MUMO 1 Welcome to BRM 1201:ERM What is Risk? LECTURER 1
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2 What does a businessperson mean when he or she says, “This project should be rejected since it is too risky”? Risk: a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for. The term risk is variously defined as: the chance of loss, the possibility of loss, Uncertainty, the dispersion of actual from expected results, or the probability of any outcome different from the one expected.
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3 The Role of Risk in Decision Making In a world of uncertainty, we regard risk as encompassing the potential provision of both an opportunity for gains as well as the negative prospect for losses.
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4 The Role of Risk in Decision Making For the enterprise and for individuals, risk is a component to be considered within a general objective of maximizing value associated with risk. Alternatively, we wish to minimize the dangers associated with financial collapse or other adverse consequences. The right circle of the figure represents mitigation of adverse consequences like failures. The left circle represents the opportunities of gains when risks are undertaken. The two circles intersect to create the set of opportunities for which people take on risk (Identify the overlapping area as the set in which we both
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5 The Role of Risk in Decision Making Striking an optimal balance between risk and return is very important to individuals and enterprises. Thus the concept of “no risk, no return” is widely accepted in the business world. A consequence to that concept is “higher risk, higher return”. Below is how many people think about the trade-off between risk and return, and it has the virtue of simplicity.
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