Before we continue with our structured approach to risk management, we need to facilitate a strong theoretical understanding of risk. People generally claim to know what “risk” is, but this conventional knowledge tends to be very inconsistent and incomplete. For example, “chance of loss,” “presence of threats,” and “opportunities whose rewards are not certain” are some common ways people define risk. Under further examination, however, these definitions all seem to fit risk but do not perfectly overlap. As a result, in order to work with the risk concept, we must first establish a complete definition.
The Risk Concept
In this book, we follow Yates1 and define risk as a construct consisting of three critical elements: ...
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