Basic risk functions

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The risk should not be attributed to unambiguously negative phenomena and conditions. In some cases, it is quite useful and logical to achieve certain goals. Let's look at the functions of risk and everything that will help to reveal the essence of this phenomenon.

Risk is…

Before analyzing the risk functions, let's define the meanings of this term:

• Combination of consequences and probability of adverse outcome.
• A situation with an uncertain outcome, as well as the possibility that the outcome may be unfavorable.
• An uncertain situation that can end in success or failure.
• Probability, under a certain set of circumstances, of losing something without having the desire to.
• Probability of getting out of control.
• Product of loss and probability.
• Probability of getting a different result than expected.

Types of risk

Before talking about the functions of financial, social and other risks, it will not be superfluous to familiarize yourself with the types of this phenomenon:

• Objective - its consequences are easy to calculate.
• Subjective - risk resultsnot possible to evaluate.
• Financial - possible losses can be calculated in monetary terms.
• Non-financial - an adverse outcome cannot be measured financially (e.g. loss of he alth).
• Static - the consequences do not change whether you take an action now or after a certain period of time.
• Dynamic - the consequences of risk may change over time.
• Private - the consequences of a venture are local.
• Clean - the presence of only two options for the development of events - success or failure.
• Speculative - successful completion of a risky venture depends on luck.
• Individual - Consequences affect only one person.
• Collective - adverse consequences can hit a certain team, community, society.
• Potential territorial - the risk of adverse events in a particular area.
• Tolerable - the consequences of such a risk are pre-calculated and acceptable for the current situation.
• Professional - the risk associated with any professional activity.
• Nanorisk is a risk associated with projects, works that are in any way in contact with nanotechnologies and nanomaterials.

Basic Risk Functions

Let's list the functions that risk has in one way or another:

• Protective.
• Stimulating.
• Socio-economic.
• Compensating.
• Innovative.
• Analytical.

Together, these functions determine one thing - to what extent you can go, stepping on the road of risk. Let's analyze each of them in more detail.

Stimulating function

Another name - regulatory. This risk function manifests itself in two forms:

• Destructive. When implementing those projects that do not provide for the study or justification of risk, their implementation will be considered voluntaristic, adventurous. Making unbalanced, unreasonable, unreasonable decisions leads to the development of qualities that do not properly characterize a business person.
• Constructive. When designing various kinds of systems, performing operations, concluding transactions, constructing objects, a mandatory study of risk sources takes place. The result of this is the search for those solutions that practically exclude or reduce the encounter with the negative consequences of the risk. The ability to take risks is one of the important features of a successful person. This is what helps to defeat conservatism, dogmatism, inertia and various psychological barriers of the individual.

Innovative feature

This risk function is responsible for finding a non-traditional solution to a standard problem. Innovative methods of activity more often than others lead to economic success. But choosing a new path instead of the beaten one is no small risk.

Socio-economic function

The essence of the function of social and economic risks is that such satellites of market activity ascompetition and riskiness make it possible to single out groups of owners in social categories, and in economic sectors - certain areas of activity for which and in which risk is acceptable.

If the state intervenes in the economy, regulating risk situations in the market, then it severely limits this function. In social terms, this leads to a violation of the principle of equality of all market participants, as well as to a general imbalance of risks.

Compensating function

The emergence of the risk function of this plan is due to the fact that, having used the risky chance, the object can count on additional profit - more than that offered by plans that exclude risk. This is also called the additional compensation or compensating effect function.

Protection function

The protective function of risk manifests itself in two aspects:

• Social and legal. The concept of "rightfulness of risk" needs legislative consolidation, and insurance activities need legal regulation.
• Historical and genetic. Both individuals and legal entities throughout history have been looking for forms and means of protection against the undesirable consequences of risks.

Risk always brings up a patient attitude towards failure. However, enterprising and initiative people need social protection in case of failure of their enterprise. A mistake due to calculated risk should not find punishment, but support - both legal and economic.

Analytic function

The analytical function of risk is that from a variety of perspectives and paths, a person seeks out the most profitable for him, but at the same time the least risky. In this case, both one's own experience, intuition, and special knowledge, research, analysis are used.

Risk properties

Let's move on from the risk functions to its characteristics, which follow from them:

• Inconsistency. Undoubtedly, risk is the engine of progress, one of the components of success. But at the same time, it leads to adventurism, subjectivism, voluntarism, and gives rise to negative both moral and economic consequences.
• Alternative. Risk is possible only where there is freedom of choice. When there is only one way of development of events, there is no question about it.
• Not indifferent. Affects the interests of at least one person or legal entity.
• Universality. Risk is not the choice of an individual, it is the necessity of the existence of entire systems.
• Factor. The success of an enterprise is directly dependent on the determinants of a risky decision.
• Situational. The situation of risk is easily distinguished from all others.

Thus, the functions of risk convince us of its usefulness and necessity both for successful activity and for the development of mankind as a whole. Of course, the risk in this case must be limited to reasonable limits and be one hundred percent justified.