Business

Ethics
Risk

J. Oloba Z.
+256-785552288
 Slide Outline
 Meaning of risk
 Risk factors
 Types of risk
 Computing risk
 Ethical management of risk

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  Sailing

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 Risk
 Risk is a word that has various meanings to
various people (Adams, 2014).

 It is a word that causes the feeling of

urgency because it addresses detrimental,
sometimes catastrophic outcomes.

 This misunderstanding greatly results from

the lack of agreement about the meaning of
the word itself.

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 Risk
 People use the same word to address
different terms.

 If you asked ten different persons what they

imply by the word risk, you would probably
get ten different answers (Johansen &
Rausand, 2014).

 Not only do the concepts of laymen and

professionals differ, but there are
differences within those communities as
well.

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 Risk
 Šotić (2015) quotes several sentences using
the word risk from the press:
o “… leads to the conclusion that tobacco, to a
moderate extent, can increase the risk of
psychosis…”

o “… the instability in Greece poses risk to the

Balkans…”

o “… this results in caution due to the risk factors

mentioned, in particular, because of increased
deterioration at the periphery of the Eurozone…”

o “… and it is about risk that affects the proper

functioning of the financial system in general, and
not only a specific financial institution…”
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 Risk
 Šotić (2015) quotes several sentences using the
word risk from the press:
o “… when you download a program from an internet site,
you do that at your own risk…”

o “… because of that, the risk of the outbreak of a new

world war is so great…”

o “… we also face a unique mixture of geopolitical risks…”

o “… inflation risks grow…”

o “… can cause serious risks to our economy…”

o “… on the one hand, there is a risk of a lasting conflict

and the division of its territory…”

o “… and accepts the technical and commercial risk…”

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 Risk
 Risk is an important concept in a number of
scientific fields, yet there is no consensus on
how it is to be defined and interpreted (Aven,
2011).

 Some of the definitions are based on

probabilities, others on expected values, some
on uncertainty and others on objectives.

 Key definitions in chronological order are given

in the next slides

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 Defining risk
 Risk is the measure of probability and the weight
of undesired consequences (Lawrence, 1976).

 Risk equals the triplet (si , pi , ci), where si is the

set of scenarios, pi is the likelihood of that
scenario, and ci is the consequence of the
scenario, i = 1, 2, ..., N (Kaplan & Garrick, 1981).

 Risk equals the product of probability and

severity (Wilson & Crouch 1982).

 Risk is a combination of five primitives: outcome,

likelihood, significance, causal scenario and
population affected (Kumamoto & Henley, 1996).
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 Defining risk
 Risk is a situation or event where something of
human value (including humans themselves) has been
put at stake and where the outcome is uncertain
(Rosa 1998).

 Risk is the expression of influence and possibility of

an accident in the sense of the severity of the
potential accident and the probability of the event
(MIL-STD-882D, 2000).

 Risk is a combination of the probability and scope of

the consequences (Risk Management Vocabulary ISO
2002).

 Risk is an uncertain consequence of an event or

activity related to something of human value (IRGC,
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 Defining risk
 Risk equals expected damage (Campbell, 2005).

 Risk is the likelihood of an injury, disease or damage

to the health of employees due to hazards (Law on
Safety and Health at Work, 2005).

 Risk refers to uncertainty about and severity of the

events and consequences (or outcomes) of an activity
with respect to something that humans value (Aven &
Renn, 2009).

 Risk is the effect of uncertainty on objectives (Risk

Management, ISO, 2009)

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 Risk factors
 The increasing diversity of risks is
considered one of the most important
challenges facing several organizations,
impacting operations and their ability to
achieve their objectives.

 Risks are due to factors, some of which are

listed below:

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 Risk factors
 The rapid change of environmental
components (technological, economic,
social, and political) where the only constant
in business is change (Nonaka, 1991).

 Furthermore, the faster the change, the

riskier it is and the faster the change
happens, the higher the risk of failure
becomes

 (Cole, 2002; Condamin, Louisot, & Naïm, 2006).

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 Risk factors
 Globalization increased competition,

 forcing companies to take more risks

including getting into uncertain markets

 (like the Internet; Aureli & Salvatori, 2012; Pennathur,

2001; R. Williams et al., 2006).

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 Risk factors
 Diversity of external and internal sources of
risk (environmental, technological, political,
legal, financial, etc.; Tchankova, 2002).

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 Risk factors
 The growing importance of knowledge
causing an increase in investment in
knowledge resources
 (Andersen, 2008, p. 162);

 companies must focus on resolving issues

such as lack of knowledge, inadequate
knowledge, knowledge obsolescence, theft
and counterfeiting knowledge, etc.

 (Marks, Colemanb, & Michael, 2003).

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 Risk factors
 The increase in impact of moral obligation as
a result of the nonworking employees,

 especially in business ethics departments

 (bribes, not disclosing facts, fraud and

forgery of documents, etc.).

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 Risk factors
 Random unexpected factors,

 such as unknown viruses (software or

natural) that are sometimes most influential
in the emergence of risk compared to other
factors

 (Dester & Blockly, 2003).

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 Risk types
 The first step in creating an effective risk-
management system is to understand the
qualitative distinctions among the types of
risks that organizations face (Kaplan &
Mikes, 2012).

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 Risk types
 Researchers classified risk in different ways,

 Campbell (2008) classified risk based on its

effect type:
 Strategic risk,
 Financial risk,
 Operational risk and
 Hazard risk.

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 Risk types
 Researchers classified risk in different ways,

 Malevergne and Sornette (2005) classified

risk as measurable or random events,

 Meanwhile, R. Williams et al. (2006)

classified risk as measurable unmeasurable
components.

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 Risk types
 Regardless of the differences in
classification,

 Researchers agree that risk classification

helps organizations understand and analyze
risks

 And this contributes to the design and

implementation of preventive and remedial
plans.

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Have an easy day in Jesus!