Risk is a reality for all of us. Each day, in the normal course of our lives, we risk:
- injury to ourselves or others
- loss or damage to our and others property
- having legal action taken against us for things we do or fail to do.
These risks can be managed in many ways. Think about what most of us do when we enter an unfamiliar setting. We tend to look around where we are to see what, if any, risks we are facing. If we identify a risk, we will generally assess its probability and likely impact. Most of us are prepared to accept risks that have a low probability and only minimal consequences. As the likelihood or seriousness of effects increases, we become increasingly concerned. Those risks that concern us most are those that are likely to happen and which would have quite serious effects.
Once we have identified a risk and have an idea of its probability and likely impact, we need to work out our response to the risk. One strategy we use to respond to some risks is to simply avoid them. For example, one good way of reducing or eliminating the risks associated with smoking tobacco is to simply stop smoking.
A second way of dealing with a risk is to transfer it to someone else. For instance, while it might be possible - and cheaper - for most of us to install a television antenna on our own roofs, some of us perceive the risk of falling to be sufficiently great that generally we will get a tradesperson to do it.
Another approach is to control things like the frequency or extent of loss arising from a risk. Loss control measures include seat belts in cars, fire alarms and sprinklers in buildings, and keeping copies of important documents.
Insurance is another common way in which we respond to risk. Life insurance, property insurance and public liability insurance are all ways that we insure ourselves against the risks that we face.
Finally, people may choose to retain risks, for example there is a risk that you might catch a cold if you get wet from the rain. People whose health is otherwise fine might be prepared to accept that risk, while those whose health is not so fine, or who otherwise wish to avoid catching a cold, will take measures to avoid catching a cold. Risk retention is an acceptable strategy particularly for those risks, which are both unlikely to occur, and of only minimal severity.
Download a pdf of the risk management section.