GOLLIS UNIVERSITY

Faculty of BBA
Department of Human Resource
Management
1 Risk Management and Insurance

Semester 6th 2022

Chapter Two: Impact of risk on

organizations

Lecturer : khadar Abdi Hassan Dhoolayare

 Contents

Chapter two: Impact of risk on

organizations
Level of risk
Impact of hazard risks
Attachment of risks
Risk and reward
Attitudes to risk
Risk and triggers
 Objectives

At end of This chapter, learners should be able to

Understand levels of risk
Clarify types of risk
Demonstrate impact of hazards
Compare and contrast reward and risk
Discuss attitudes of risk
List risk triggers
 Level of risk
All organizations are taking a greater interest in risk and
risk management. It is increasingly understood that the
explicit and structured management of risks brings
benefits. By taking a proactive approach to risk and risk
management.
 Cont……
5

Organizations will be able to achieve the following four areas of

improvement:
 Strategy, because the risks associated with different strategic
options will be fully analysed and better strategic decisions will be
reached.
Tactics, because consideration will have been given to selection of
the tactics and the risks involved in the alternatives that may be
available.
Operations, because events that can cause disruption will be
identified in advance and actions taken to reduce the likelihood of
these events occurring, limit the damage caused by these events and
contain the cost of the events.
Compliance will be enhanced because the risks associated with failure
to achieve compliance with statutory and customer obligations will be
recognized.
 Impact of hazard risks
6

Hazard risks undermine objectives, and the level of impact

of such risks is a measure of their significance.
Hazard risk management is closely related to the
management of insurable risks. Remember that a hazard
(or pure) risk can only have a negative outcome.
Hazard risk management is concerned with issues such as
health and safety at work, fire prevention, avoiding
damage to property and the consequences of defective
products.
 Hazard risks can cause
7

Disruption to normal operations

Increased costs
Poor publicity associated with disruptive events
 Attachment of risks
8

What is attachment of Risk?

Attachment of risk is the commencement of liability
under a contract of insurance to answer for any loss or
damage that may result from a risk insured against.
The loss or damage should be during the term of the
insurance in an amount not exceeding the amount
stipulated in the contract.
Attachment of risk is also a stage in a transaction
(usually the point of delivery) where the buyer acquires the
risk of loss of the purchased item.
When the buyer accepts risk of loss of a purchased item.
 figure
9
 Risk and reward
10

Another feature of risk and risk management is that many risks

are taken by organizations in order to achieve a reward. A
business will launch a new product because it believes that
greater profit is available from the successful marketing of that
product. In launching a new product, the organization will put
resources at risk because it has decided that a certain amount
of risk taking is appropriate.
The value at risk represents the risk appetite of the
organization with respect to the activity that it is undertaking.
 Risk appetite
11

What is Risk appetite?

Risk appetite is the amount of risk an organization is
willing to take in pursuit of objectives it deems have
value.
Risk appetite can also be described as an
organization's risk capacity, or the maximum amount
of residual risk it will accept after controls and other
measures have been put in place.
 Figure
12
 Attitudes to risk
13

Different organizations will have different attitudes to risk.

Some organizations may be considered to be risk averse,
whilst others will be risk aggressive.
To some extent, the attitude of the organization to risk will
depend on the sector and the nature and maturity of the
marketplace within which it operates, as well as the
attitude of the individual board members.
 Risk Attitude
14

What is Risk attitude?

Risk Attitude is at high level and shows the natural
inclination or basic nature of stakeholders or
organizations if they are willing to take risk or not. It
represent a response chosen by stakeholders which is
driven by their perception of a specific situation
 Types of Risk attitude
15

here are mainly three types of risk attitude.

Risk Seeker – People who enjoy risk. They don’t
worry too much about repercussions if the risk
materialize. They are more focused on benefits they are
going to get.
Risk Averser – Risk Averse people don’t like
uncertainty. They intend to take path that is most
certain even if it is least rewarding.
Risk Neutral – Risk Neutral people are quite calculative
and they weigh all pros and cons before deciding to
take risk or not.
 Risk and triggers
16

Risk is sometimes defined as uncertainty of outcomes.

This is a somewhat technical, but nevertheless useful,
definition and it is particularly applicable to the management
of control risks. Control risks are the most difficult to
identify and define, but are often associated with projects.

A risk trigger is a condition or other event that will cause a

risk to take place. Risk triggers for a given risk are identified
during the risk analysis..
End Lecture One