Risk: Concept & Components

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Whenever there is a likelihood scenario of losing someone or something of value, there is risk associated. In a broader perspective, risk can also be understood as potential for loss. In financial terms, risk is either pure or speculative. If there is no chance of gain, the risk is pure while in the case of speculative risk, there is some chance of winning or gaining as well. Not taking care of your health implies pure risk while buying an insurance plan for the same is speculative risk.     

‘Risk’ can also be categorized as ‘Voluntary’ such as, betting on a cricket match and ‘Involuntary’ such as, an earthquake or any other disaster for that matter. Although widely communicated, the usage and meaning of the term ‘Risk’ differs with different activities or events and their nature or characteristic. Therefore, it is hard to come down to a single definition of the word, suitable for all the possible cases.

In the field of Environmental Health and Safety (EHS), the term ‘Risk’ is widely accepted as the product of ‘Probability’ and ‘Severity’ i.e. Risk = Probability x Severity; Where Probability means a loss event in terms of frequency of occurrence and Severity means the impact of the event in terms of fatality and loss. This Risk Matrix is used during risk assessment to designate the level of risk involved with a certain action, event or condition.

The definition, explanation and interpretation of ‘Probability’ and ‘Severity’ depend on the risk tolerance level of the concerned entities, be it an individual, organization, community, businesses or an entire nation. Further, after interpreting the ‘Probability’ in terms of frequency of occurrence and the ‘Severity’ of impact in terms of loss, the ‘Risk Assessment Matrix’ can also be used to calculate the risk quantitatively.

In industrial sector the Matrix is commonly used as risk assessment tool to eliminate the risk associated with hazardous condition or unsafe act. The quantitative analysis and thus obtained numerical representation of potential risk event makes it easier for the concerned supervisors to prioritize mitigation actions based on the level of damage or loss predicted by the matrix.

Sometimes, risk is mistaken for other similar terms such as hazard, threat or vulnerability. Although they all help to explain risk more clearly, essentially they carry different meanings. Hazard is potentially damaging physical event or condition that may cause loss of life, property or environment. A hazard does not take probability of the event occurring into account whilst stating a risk we need to incorporate the probability factor as well.

Threat, on the other hand, is more of an abstract concept where both probability and severity of impact is hard to specify and analyze. For example, terrorism is a threat but very hard to specify its extent of impact and frequency of occurrence. Vulnerability can be simply understood as a fault within the system itself which is often exploited by external threats. For example, not having adequate security measure is a vulnerability which can be exploited by terrorists to create disaster.

In Disaster Risk Management (DRM) context, a disaster risk is a function of hazard, exposure and vulnerability i.e. Disaster Risk = function (Hazard, Exposure and Vulnerability). A hazard can be natural or human-induced and same is true for a potential disaster event. A hazard seems to be the primary component which, in combination with vulnerability and exposure, could give rise to the potential for loss, we call risk. Failure to mitigate such risks and/or their impacts beforehand could eventually cause a disaster.     

We may not be able to control all the hazards or mitigate their impacts so the rationale behind the DRM planning is to reduce the vulnerability and the exposure, instead. For example, to control probable impact of a disaster caused by a natural hazard, such as an earthquake or a landslide, we can minimize our vulnerabilities by building earthquake safe buildings and resilient infrastructures. Similarly, disaster exposure can be contained by relocating populations and property away from hazardous zones such as earthquake fault lines or landslide prone areas.

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