Chapter 4. Risk and Uncertainty

Chapter 4. Risk and Uncertainty. Risk and uncertainty create obstacles in fulfilling goals for business organizations and investors and others, and we generally observe a deviation between the expected results and realized results of firms and investors. This risk plays an import role in making decisions by firms and investors. That is why it becomes necessary to recognize and measure risks before taking any business decision. In this chapter, we will learn different aspects of risks and uncertainty.

Chapter 4. Risk and Uncertainty

Rohan is a student of class nine. He expects to score a GPA of 5 in his S.S.C examinations. Mr. Rashed is the farmer.  He expects to get a good harvest from his lands. Sumon is a last year student of the BBA program at Dhaka University. He expects to join a good job after completing his BBA degree. Here obtaining a GPA 5 by Rohan, getting a good harvest by Mr. Rashed and joining a good job by Sumon, everything is uncertain, because every event here is related to the future.

Business and management

Means of assessing risk vary widely between professions. Indeed, they may define these professions; for example, a doctor manages medical risk, while a civil engineer manages the risk of structural failure. A professional code of ethics is usually focused on risk assessment and mitigation (by the professional on behalf of the client, public, society or life in general).

In the workplace, incidental and inherent risks exist. Incidental risks are those that occur naturally in the business but are not part of the core of the business. Inherent risks have a negative effect on the operating profit of the business.

In human services

The experience of many people who rely on human services for support is that ‘risk’ is often used as a reason to prevent them from gaining further independence or fully accessing the community, and that these services are often unnecessarily risk-averse.[20] “People’s autonomy used to be compromised by institution walls, now it’s too often our risk management practices”, according to John O’Brien.[21] Michael Fischer and Ewan Ferlie (2013) find that contradictions between formal risk controls and the role of subjective factors in human services (such as the role of emotions and ideology) can undermine service values, so producing tensions and even intractable and ‘heated’ conflict.

High-reliability organizations (HROs)

A high-reliability organization (HRO) is an organization that has succeeded in avoiding catastrophes in an environment where normal accidents can be expected due to risk factors and complexity. Most studies of HROs involve areas such as nuclear aircraft carriers, air traffic control, aerospace, and nuclear power stations. Organizations such as these share in common the ability to consistently operate safely in complex, interconnected environments where a single failure in one component could lead to catastrophe. Essentially, they are organizations that appear to operate ‘in spite’ of an enormous range of risks.

Some of these industries manage risk in a highly quantified and enumerated way. These include the nuclear power and aircraft industries, where the possible failure of a complex series of engineered systems could result in highly undesirable outcomes. The usual measure of risk for a class of events is then: R = probability of the event × the severity of the consequence.

The level of risk deemed broadly acceptable has been considered by regulatory bodies in various countries—an early attempt by UK government regulator and academic F. R. Farmer used the example of hill-walking and similar activities, which have definable risks that people appear to find acceptable. This resulted in the so-called Farmer Curve of acceptable probability of an event versus its consequence.

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