Expert: date=October 2008

Risk is a concept that denotes the precise probability of specific eventualities. Technically, the notion of risk is independent from the notion of value and, as such, eventualities may have both beneficial and adverse consequences. However, in general usage the convention is to focus only on potential negative impact to some characteristic of value that may arise from a future event.

RISK can be defined as “the threat or probability that an action or event, will adversely or beneficially affect an organisation's ability to achieve its objectives”1. In simple terms risk is ‘Uncertainty of Outcome', either from pursuing a future positive opportunity, or an existing negative threat in trying to achieve a current objective.

Historical background

The term risk only emerged in the modernity. "In the Middle Ages the term riscium was used in highly specific contexts, above all sea trade and its ensuing legal problems of loss and damage."Luhmann 1996:3 In the vernacular languages of the 16th century the words rischio and riezgo were used, both terms derived from the Arabic word "رزق", "rizk", meaning 'to seek prosperity'. This was introduced to continental Europe, through interaction with Middle Eastern and North African Arab traders. In the English language the term risk appeared only in the 17th century, and "seems to be imported from continental Europe." When the terminology of risk took ground, it replaced the older notion that thought "in terms of good and bad fortune." Niklas Luhmann (1996) seeks to explain this transition: "Perhaps, this was simply a loss of plausibility of the old rhetorics of Fortuna as an allegorical figure of religious content and of prudentia as a (noble) virtue in the emerging commercial society."Luhmann 1996:4

Scenario analysis matured during Cold War confrontations between major powers, notably the U.S. and the USSR. It became widespread in insurance circles in the 1970s when major oil tanker disasters forced a more comprehensive foresight.Fact: date=February 2007 The scientific approach to risk entered finance in the 1980s when financial derivatives proliferated. It reached general professions in the 1990s when the power of personal computing allowed for widespread data collection and numbers crunching.

Governments are using it, for example, to set standards for environmental regulation, e.g. "pathway analysis" as practiced by the United States Environmental Protection Agency.

Definitions of risk

There are many definitions of risk that vary by specific application and situational context. The widely inconsistent and ambiguous use of the word is one of several current criticisms of the methods to manage risk. One is that risk is an issue, which can be avoided or mitigated (wherein an issue is a potential problem that has to be fixed now.) Risk is described both qualitatively and quantitatively. In some texts risk is described as a situation which would lead to negative consequences.