Risk Writing: Perceptions, Tips, and Opportunities - Essay Sample

Different people interpret "risk" differently, especially in the setting of risk writing. While some discuss opportunities and risks together, others discuss risks with rewards. Therefore, it is clear that negative risks have been tied to tips and positive opportunities. Most reports on risk talk of it in the bad light, and this is what people follow in words. However, the term risk can also be used in other areas, like it can be used in regarding uncertain outcomes to happen in the future (Emmett, 2020). The term risk could be either upside risk, where the probable outcome is likely to be good, or downside risk, where the possible product is bad. It means there are two main ways of using the term risk, for example, in showing that one situation may be difficult than another in consideration to probable loss and the variability of the expected losses. Extensions of these meanings may thus see risks as changeability on the outcome. Frank categorizes risks in a variety of ways depending on how the sorts overlap and how different groups are useful in different resolutions. Examples of risk categories he uses in risk management include; market risks, credit risk, and operational risks. Market risks are concerned with commodity prices, risks involved in exchange rates, interest rates, and equity. Functional risk deals with loss or damage to assets, legal liability, worker illness/injury, and interruptions in business. There are also other risks like liquidity, for example, which is a risk associated with firms not having enough cash to cover their financial duties.

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And so, economist Frank H. Knight makes distinctions arising from risks and uncertainties. Knight separates risks that are measurable with those that cannot be measured. According to the author, some risks can be measured, which he terms as risk 'proper.' The risks that cannot be measured he terms them as uncertainty. Examples of appropriate risks are those that occur in games of chance like gambling in casinos where the odds against outcomes depend majorly on mathematical accuracy. The above type of bet is uncommon in commerce. However, there are some types of threats in commercial activities that do not meet such a mark of certainty. These types of bets may be calculated using statistical indications derived from large amounts of events and items. Such entails numbers of errors that could result in the rise of extremely repetitive invention methods; for example, organizations can know with a degree of accuracy the number of faulty fragments they are expected to yield. And so, an insurer is likely to rely on this type of risk calculations. Even though such predictable risks could be appropriate for particular fundamentals in the economic statements for insurers, most business risks in Knight's standings are just uncertainties (Emmett, 2020). These are points that have important implications for risk reporting as they show that the risks in question cannot be measured, at a minimum, in an unbiased manner.

Therefore, any reports on them, whether in the financial information, can be enforced to qualitative or, the degree to which they are measured, to be independent or constrained in their scope. Some quantifications of risk, theoretically consequential of objective designs, may not only be subjective but only meet the threshold on the bogus. Examples of events that may fall in this category are claims that are based on a few months or years knowledge, like a chance of "one in a billion." Such types of risks are typically uncertainties that cannot be measured. Designs of risks as unpredictability around outcomes are habitual of these kinds. For various items and events dynamically dealt with in the markets, it is likely to create statistical records for variations in item prices and to spring from probabilistic circulations showing the frequency of different quantities of aberration from expected outcomes. And so, these quantities of price volatility can be labeled as dimensions of risks, and therefore, are useful in producing financially measured events like value at risk, popularly known as (VaR). Nevertheless, these are only effective as progressive measurements of instability so long as the future results resemble the past from which data was derived (Sakai, 2019). Even though some people have compared this driving a carriage by watching the back-view mirror, the short-term future shows the step of continuity with the past. Therefore, such quantities can be a very useful device in the management of risk (Sakai, 2019). However, these may not be true measurements of risks, as the route for the impending price arrangements is constantly uncertainties that cannot be measured. Thus, the meanings of risks as a variable around expected outcomes are essential as they underlie a lot of risk management, especially in institutions dealing with finances, risk broadcasting, among others.

Conclusively, due to the need for risk management by firms, boards of directors should effect a process to be applied in a strategic location to identify events likely to affect the entity. Besides, the procedures should ensure that the risks are managed (Sakai, 2019). The appropriate way of ensuring risk management thus is by providing the right guarantee towards obtaining the purpose of the entity. And therefore, this paper attempts to explain the concepts that Frank delivers in his book on risk and risk management.

References

Emmett, R. B. (2020). Reconsidering Frank Knight's Risk, Uncertainty, and Profit. The Independent Review, 24(4), 533-541.

Sakai, Y. (2019). Frank H. Knight on Uncertainty and Profit: Manager Versus Entrepreneur. In JM Keynes Versus FH Knight (pp. 101-113). Springer, Singapore.