We take all the decisions on the basis of risks percepted.
If risk percepted is less than possibility of rewards,we will go for it.
I say ‘Risk Perception’ and not actual risk.As in the same situation everybody percieve different kind of risk.
Let’s analyse risk.Risk in pure statistical terms can be measured as Percentage of failure.Thats it.But almost always we link risk to impact of failure or risk realisation.
We will go by examples.
Let’s assume you can walk on 1 ft wide wall.Now as far as risk goes,it won’t change if height of wall is 1 ft or 100 mtrs.But almost always decision is made by height of the wall and not width of the wall.Interestingly,rewards will be proportional to height of the wall…..Nothing to do with risk…..Now what changes?Risk does not.Change is in aftereffect of failure.Is risk is realised,then what will be the impact?Now there are different ways to reduce risk itself,and impact of risk realisation.
We will have another example to elaborate the point.
You are driving a vehicle.You are on downhill and suddenly encounter very sharp turn.Now this is the riskiest situation for a driver.
In any situation there are 3 parameters
1.Driver
2.Vehicle
3.Road
All these parametrs collectvely decide risk involved.
Risk can be reduced with
1.Information
2.Descipline
3.Skill
1.Information or Knowledge
The risk is inversely proportional to knowledge or information driver has.
If driver knows previouslly ,that there is dangerous turn ahead,chance of accident reduce to minimum.
Now driver can have this info by
1.Driver himself:He has already travelled on the road and knows exactly where turn is
2.Road:Road has sign board giving u information
3.Vehicle:Vehicle has GPS system attached,telling you about the turn in advance.
2.Descipline:Only have infiormation is not suitable.You have to have discipline to implement the knowledge.This again can be imparted by all the 3 parameters.
1.Driver:He/She has to slow down the vehicle,knowing that there is sharp turn ahead.
2.Road:Road has speed breakers before sharp turn so that vehicles are forcefully slowed down
3.Vehicle:Intelligence built in vehicles to slow down automatically.
3.Even if one has knowledge and discipline,one has to have adequate skills to successfully implement the desired action.Again all the said parameters play arole.
1.Driver:Driver is skilled enough to take sharp turn on downhill
2.Road:Road has adequate angle of banking.
3.Vahicle:Vahicle has minimum runing radius and good balance to avoid toppling.
Now interesting part about risk is that it can be minimised,cannot be eliminated.
Now though you have knowledge,descipline and skills ,still risk can be realised and you have to have policy to reduce the impact.
In the above examples aftereffects can be reduced by
1.Driver:
Physical risks:Has already fastened the seat belts.
Financial risk: a.Has car insurance b.has health insurance.
2.Road:Road has strong fencing or girdles ,so that vahicle won’t go into the valley.
3.Vehicle:Vehicle is designed for shock absorption,ballons comes out immediately after a shock
This example is certainly a primitive one.But its enough to demonstrate various factors involved in risks and how risk is different than impact of the risk
