Fundamentals of Risk and Decision
Making | Complete Exam Notes on Risk
Types, Expected Value & Risk
Management|Latest Updated 2026
Rationales Graded A+
Risk
Uncertainty regarding potential loss or harm.
Risk Management
Scientific approach to mitigate and manage risk.
Frequency
Likelihood of an event occurring.
Severity
Impact level of a potential loss.
Expected Value (EV)
E(loss) = frequency * severity of loss.
Risk Profile
Graphical representation categorizing risk types.
Sources of risk
-personal
-property
-liability
-financial
Exposure
Person or property facing risk of loss.
Peril
Immediate cause of a potential loss.
, Hazard
Condition affecting frequency or severity of loss.
Pure Risk
Risk with no possibility of gain.
Speculative Risk
Risk with potential for gain or loss.
Static Risk
Risk that remains constant over time.
Dynamic Risk
Risk that changes with circumstances.
Fundamental Risk
Risk affecting large groups or economies.
Particular Risk
Risk affecting specific individuals or entities.
Core Risk
Essential risks inherent to an organization.
Secondary Risk
Risks that arise from primary risks.
6 steps of risk management process
1. Determine the Objectives
2. Identify all of the Risks
3. Evaluate the Risks
4. Consider the Alternatives
5. Implement the Decision
6. Evaluate and Review
Pre-loss Objectives
Economy, reduction in anxiety, meeting externally imposed obligations, social responsibility
Post-loss Objectives
Making | Complete Exam Notes on Risk
Types, Expected Value & Risk
Management|Latest Updated 2026
Rationales Graded A+
Risk
Uncertainty regarding potential loss or harm.
Risk Management
Scientific approach to mitigate and manage risk.
Frequency
Likelihood of an event occurring.
Severity
Impact level of a potential loss.
Expected Value (EV)
E(loss) = frequency * severity of loss.
Risk Profile
Graphical representation categorizing risk types.
Sources of risk
-personal
-property
-liability
-financial
Exposure
Person or property facing risk of loss.
Peril
Immediate cause of a potential loss.
, Hazard
Condition affecting frequency or severity of loss.
Pure Risk
Risk with no possibility of gain.
Speculative Risk
Risk with potential for gain or loss.
Static Risk
Risk that remains constant over time.
Dynamic Risk
Risk that changes with circumstances.
Fundamental Risk
Risk affecting large groups or economies.
Particular Risk
Risk affecting specific individuals or entities.
Core Risk
Essential risks inherent to an organization.
Secondary Risk
Risks that arise from primary risks.
6 steps of risk management process
1. Determine the Objectives
2. Identify all of the Risks
3. Evaluate the Risks
4. Consider the Alternatives
5. Implement the Decision
6. Evaluate and Review
Pre-loss Objectives
Economy, reduction in anxiety, meeting externally imposed obligations, social responsibility
Post-loss Objectives
