Risk Corner – Classification of Risk
Risks are classified by their nature and impact. The two broad categories are Pure Risk and Speculative Risk and vary in nature and complexity. Risk has further been classified as into dynamic, static, fundamental and particular.
Dynamic Risks are associated with changes that take place in our society, they may be economic, social, technological, environmental, and political. The dynamic are closely related to speculative risks. We now see a changing pattern of risk in our society – e.g., seaweed at Lumley Beach, landslide, erosion, environmental degradation, and climate change, etc.
Static Risks are those that exist irrespective of changes in our society. These are closely associated with pure risks e.g., fire at Lands, Works Ministry, National Social Security and Insurance Trust (NASSIT), private buildings, fraud, earthquake, injury, etc.
Fundamental Risks are those that affect the society at large, e.g., national disaster (Office of National Security NAO building on fire) for shores, Hilltop, Valley, such are impersonal in cause and effects.
Particular Risks affect the individual or firm and arise from factors under control.
The real level of risk comprises – the individual steady toll of fires and accidents, theft, explosion robbery, maritime frauds and other similar events. They rarely grab the front page space in our newspaper but nevertheless, form the bulk of the work of the Risk Management. The list is lengthy and costly in terms of money and of human pains and sufferings. The amount of money on fire waste, people injured or killed, recent road accident at Okra Hill etc, theft is enormous. What do we do – ban economic activities to avoid being injured or killed; ban motor vehicles to stop road accidents; these are all unreasonable options, the world has to continue even in the face of risk, what we can do is to try and manage our exposure to risk.
Quite simply risk management is the method and means of recognizing what these events are and how severe they may be and how they can be effectively controlled. Text books are full of definitions of Risk Management. However, a working definition of risk management is proffered here.
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