BFT 319 RISK

MANAGEMENT
SEM 2 208/2019
DAYANG HASLIZA MUHD YUSUF
 Contents
1. Welcome note
2. Course syllabus & references
3. Online learning – enrolment in UniMAP elearninglab
4. Assessment & contributions
1. Quizzes (10%)
2. Individual assignments (20%)
3. Group assignment (20%)
5. Class attendance & expectations
 Learning Objectives
• Explain definition of risks, uncertainties, loss of exposure, objective risk,
subjective risk, chance of loss
• Describe and compare risks classifications:
• Pure risk vs. Speculative risk
• Diversifiable risk vs. Non-diversifiable risk
• Enterprise risk vs. Systemic risk
• Identify pure personal risks and commercial risks
 Definition of risks related terms
• Traditional risk meaning Uncertainty concerning the occurrence of loss, damage, failure, injury

• Risk ≠ uncertainties
Risk  probabilities of possible outcomes can be estimated

Uncertainties  probabilities of possible outcomes is unknown

 Definition of risks related terms
• Loss exposure – situation/circumstances where loss is possible
• Objective risk / degree of risk – relative variation of actual loss from
expected less
• Subjective / perceived loss – uncertainty based on person’s mental condition
or state of mind
• Examples
 Chance of Loss
• The probability (chance) that a loss will happen
• Objective probability  long-run relative frequency of an event based on
the assumptions of an infinite number of observations and of no change in
underlying conditions
• Subjective probability  individual personal estimates of the chance of loss
 Peril & Hazard
• Peril  cause of loss
• Hazard  condition that creates / increases the frequency or severity of loss
• 4 major types of hazard:
• Physical hazard – e.g. old wooden building
• Moral hazard – dishonesty / character defects
• Attitudinal / morale hazard – carelessness / indifference to a loss
• Legal hazard – characteristics of the legal system / regulatory environment
 Risks Classifications

Pure risk Speculative risk

• A situation with only loss / no • Situation with profit / loss
loss possibilities possibilities
• Eg. Premature death, job related • Eg. Investments, starting up a
accidents business
 Risks Classifications

Diversifiable risk Non-diversifiable risk

• Only affects individuals / small • Affects the entire economy / large
groups and not entire economy number of groups / people in the
• Non-systematic / particular risk economy

• Eg. Change of customers’ taste • Fundamental risk

• Eg. Natural disaster, unemployment
 Risks Classifications

Enterprise risk Systemic risk

• All major risks faced by a business
firm
• Include pure risk, speculative risk,
strategic risk, operational risk,
financial risk
• Collapse of entire system /
economy / market due to failure of
an entity / group that can lead to
breakdown of entire financial
systems

• Enterprise risk management

 Major Personal & Commercial Risk
• Personal  directly affect individual / family • Potential loss faced by businesses that can lead to
bankruptcy
• Eg. Loss / reduction of income, extra expenses
• Property risks
• Includes:
• Premature death
• Property risks
• Inadequate retirement income • Liability risks
• Poor health • Loss of business income
• Unemployment • Cybersecurity & identity theft
• Property risk – direct / indirect • Human resources
• Liability risks • Foreign loss
• Political risks
• etc
 In-Class Discussion
• What do you understand by the term ‘risk’?
• Provide your own example of risk.
• Identify the types of hazard for each of the following situation:
• The presence of oil spills on the road.
• A motorist driving too fast.
• Students submitting somebody else’s works as their own.
• Leaving your belongings / valuables at public places.
• Missing BFT319 classes.