It has been asserted through research that risk assessment is a function of two variables, the likelihood or probability of the event, and the severity of the consequences of the event. Literatures have been divided between those that consider the vital role that likelihood information might play when quantitatively and analytically evaluating the magnitude of risk versus those that intuitively overestimate risks when formulating their judgments due to the emotional effects of severity without considering much the likelihood information. It has been concluded that adopting a neutral approach between these two perspectives, with careful consideration of their biases, would optimally help managers in identifying and mitigating their risks.
The meaning of the word ‘risk’ has several connotations that differ from one person to another. Deregulation in today’s business environments has forced managers to face unpredictable and sporadic changes, whose inevitability has introduced the phenomena of risk and uncertainty in decision-making. Although Frank Knight provided a clear distinction between these two terms, there are […]