The notion of risk

 The notion of “risk” and its ramifications permeate decision-making processes in each individual’s life and business outcomes and of society itself. Indeed, risk, and how it is managed, are critical aspects of decision making at all levels. We must evaluate profit opportunities in business and in personal terms in terms of the countervailing risks they engender. 

We must evaluate solutions to problems (global, political, financial, and individual) on a risk-cost, costbenefit basis rather than on an absolute basis. Because of risk’s all-pervasive presence in our daily lives, you might be surprised that the word “risk” is hard to pin down. For example, what does a businessperson mean when he or she says, “This project should be rejected since it is too risky”?

Does it mean that the amount of loss is too high or that the expected value of the loss is high? Is the expected profit on the project too small to justify the consequent risk exposure and the potential losses that might ensue? The reality is that the term “risk” (as used in the English language) is ambiguous in this regard. One might use any of the previous interpretations. Thus, professionals try to use different words to delineate each of these different interpretations.

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