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Risk Exam 1 Study Guide
Topic 1 Module 1
Risk
Noun- A situation involving exposure to danger
Verb- Expose (something or someone valued) to danger, harm, or loss
Uncertainty
Having 2 or more potential outcomes for an event or situation
Risk
Uncertainty about a future outcome, particularly the consequences of a negative outcome
Outcomes may vary from the expected
Situation of Driving Under the Influence of Alcohol
Possible Outcomes (uncertainty):
Not caught driving (Expected)
Caught (DUI….Not Expected)
Accident (Certainty not Expected)
Risk (consequences)
Loss of respect by peers
Higher car insurance rates
Cancellation of auto insurance
Loss of driving privilege/jail
Risk is the uncertainty about outcomes (future events)
Outcomes may be negative or positive
Risk management is a process that (among other things)
Identifies Risk
Measures Risk
Controls Risk
Finances Risk
Uncertain Outcomes
What will happen?
When will it happen?
Possible vs. Probable
Possible that a 55 year old will get breast cancer this year
No indication of likelihood or chance
Risk is simply identified
Probability of a Loss
0% chance- Impossible Event- No risk
100% chance- Certain Event- No risk
In between these 2, some degree of uncertainty and risk
Probability does not determine amount of risk
Loss Exposure
Occurs when an asset decreases in value
In risk management, ALL losses are in financial terms!
Loss exposure is the situation that exposes an asset to a loss
Any condition that has the possibility of a loss
Elements of Loss Exposure
Asset
Also known as unit of exposure
Ex- Building
Peril
Immediate cause of loss
Ex- Fire
Financial consequences of the loss
Property Loss
Ex- The building burns down
Measurement of Risk
Frequency
Number of losses in specified period of time
Measures how often losses occur
Severity
Dollar amount of a particular loss
Measures how much a loss costs
Total Loss
Dollar amount of losses for all occurrences in

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