Q.What is meant by 'risk'? State any four ways in which a person or business can deal with a risk.

Risk is the possibility of an uncertain event causing financial loss; once identified, it can be handled in several planned ways rather than simply hoped away.

Define risk first, then list any four recognised methods of managing it.

Meaning of risk. Risk means the possibility of an unfavourable or adverse outcome — the chance that some uncertain future event will happen and cause a financial loss. It requires both genuine uncertainty (we cannot be sure whether or when the event will occur) and the possibility of loss.

Ways of dealing with risk (any four):

1. Risk avoidance — not undertaking the risky activity at all, which removes the risk but also its possible benefit.
2. Risk retention (self-assumption) — bearing the risk oneself, often for small losses or where cover is unavailable, sometimes by setting aside a reserve fund.
3. Risk reduction / loss control — taking steps to reduce the chance or size of a loss, such as fire extinguishers, safety guards or careful storage.
4. Risk transfer — shifting the financial burden to another party; insurance is the most systematic method, transferring an uncertain large loss to the insurer for a fixed premium.
5. Risk sharing / pooling — spreading a risk among many parties so no single party bears the whole of it.